Whatever happened to the indoor fashion mall? The iconic symbol of 1980s consumer culture with its department stores, roving tweens, and scented-candle kiosks seems to have gone the way of the VCR. Faced with stiff competition from Internet shopping sites and a middle-class holding tight to their wallets, the mall (which in fact dates back to the early 1950s) would seem to be on life support. Indeed it’s estimated that 3% of all malls have vacancy rates over 40%. One in five malls have rates above 10%.
But not all malls are created equal. Upscale malls, dubbed “Class A” by investors and the retail industry, continue to thrive. At the Mall at Mellenia in Orlando, FL, for instance, anchor tenants like Bloomingdale’s and Neiman Marcus help drive $1,400 in sales per square foot at the 15-year old location.
It’s the Class B and C malls that are suffering. Over the years, mall owners have attempted to reinvent these assets by adapting existing space for non-retail tenants such as church congregations and schools. But that can only go so far. Instead, another, more aggressive strategy for dead malls is taking shape. It’s one that holds promise for preserving short-term land value while capitalizing on long-term community and economic development trends—the redevelopment and creation of new mixed-use retail centers using existing infrastructure.
These mash-ups typically feature stores, health centers, hospitality, office, and even housing—everything in one place to attract busy people looking for lifestyle convenience.
Everyone potentially wins: Sizeable projects likely receive some form of public benefit incentives in the form of zoning variances, real estate and sales tax abatements and other goodies. These help close the gap in investment economics to effectively preserve and potentially increase the value of land over the course of the project. They also attract private equity and debt, and can create attractive return to investments. In turn, municipalities measure their return on investment based on short- and long-term economic and fiscal impacts received, including job creation, increased secondary spending in the local community and of course, tax revenue.
The infographic below shows the state of U.S. malls and the evolution towards the mall mash-up trend.