Adapt or fail. That is the reality for retail malls operating in the U.S. and around the world.
In September, the CCIM Institute published “Retail e-Volution: Predictions for 2025,” a special report authored by K.C. Conway, CCIM’s Chief Economist and director of research and corporate engagement for the Alabama Center for Real Estate. The report debunks several myths that have arisen following a glut of retail bankruptcies and store closings over the past decade.
The report states that “the real culprit behind retail bankruptcies and closings is overleverage and the U.S. being ‘over retailed,’ not changes in consumer spending. One in four malls will close by 2022, and retail space will contract by more than 50 percent.”
The growing popularity of E-commerce, in combination with changes in the shopping patterns of consumers, has led to the repurposing of old buildings, particularly malls and shopping centers. This means, according to Conway, that an existing structure that has become functionally or economically obsolete must undergo a change of use to suit new plans that are more economically viable.
Furthermore, the report predicts that:
- Providing experiences and services (e.g., co-retailing in hospitality and airports) will redefine success for brick and mortar stores, with hotels becoming the new showrooms for retail; and
- Adaptive reuse of retail centers and malls will be the most impactful trend for retail between now and 2025.
Mall owners are responding by changing the traditional boundaries beyond retail to create community centers that act as destinations where guests can meet, eat, be entertained, co-work, exercise and shop, as they desire.
Today, traditional food courts are being replaced by expansive food halls and a variety of fast casual and quick service restaurants. Malls are incorporating hotels in addition to a variety of services and conveniences to attract guests including dry cleaners, salons, barber shops, gyms, yoga and Pilates studios and other workouts centers, recreational areas for rock climbing, childcare and day care centers, and even medical facilities offering urgent, surgical and ambulatory care. Other increasingly common features include indoor water parks, electric go-karts, mirror mazes, axe-throwing parlors and other popular amusement attractions.
Research from international real estate advisor Savills reveals that up to three quarters of landlords are undertaking or considering the redevelopment of retail assets, but 90% will explore revitalizing their retail and leisure offerings before considering alternative uses.
Savills’ new Re:Imagining Retail report shows that 18% of landlords have already completed a repurposing project with a further 75% considering undertaking such a project in the foreseeable future.
Non-traditional retailers are increasingly entering retail spaces that were previously considered unworkable. In September, the Connecticut-based fresh-focused grocer Stew Leonard’s made its debut in New Jersey with the opening of an 80,000-square-foot supermarket located in the Paramus Park Mall. The grocery store occupies a space vacated by the faded retail giant and longstanding retail mall mainstay Sears Department Store.
Last December, an international grocer based in Germany, LIDL, became the first supermarket in the forty-six year old Staten Island Mall. LIDL opened its 36,000-square-foot store in a space that was also previously occupied by Sears.
The Staten Island Advance reported that “over the last two years there has been an influx of new stores at the Mall, as its parent company positioned the retail center for the future. This included a 242,000-square-foot renovation which began in 2015 and welcomed a host of new stores and restaurants to the shopping center.”
The renovated Staten Island Mall now features a centrally located exterior plaza used for community gatherings and seasonal events, a “food district” with a myriad of restaurant options, a dine-in theater showing IMAX films and additional entertainment options like Dave & Buster’s.
Many of the new stores, including LIDL, the Container Store, Primark and Ulta Beauty are non-traditional mall outlets in that they have outdoor entrances and are not connected to the mall.
Residential housing, hotels and senior living facilities are other options that developers are considering as alternative uses for failing mall properties.
Earlier this year, North Jersey.com reported that the owners of Westfield Garden State Plaza in Paramus, the region’s largest shopping center, plans major renovations. Mall officials announced that these will develop luxury residential properties, a public park, hockey rink and possibly a high-end hotel. The park will boast an open-air plaza, fields, tree-lined streets and a promenade. Three vacant spaces (one near J.C. Penney, one near Uniqlo and another in a building that was once Best Buy) at the mall will also be repurposed to hold about 20 new retail spots, restaurants, family entertainment establishments and health and fitness studios.
More and more malls are leasing space to coworking companies. Bisnow reported that “Coworking is already part of mixed-use developments,” adding that “developers now have the opportunity to attract coworking companies directly into retail centers.”
"It’s no longer a backfill to vacant boxes, but rather a lifestyle shift, offering flexibility and providing a nontraditional office environment," said Anjee Solanki, Colliers National Director of Retail Services. According to Solanki, coworking in a retail property context is partly about creating a sense of community by hosting organizations, entrepreneurial startups, college discussions and more. A report by Colliers suggests that these coworking spaces benefit nearby retailers by driving foot traffic to shops and restaurants. More than two-thirds of those surveyed by Colliers said that occupying a coworking space in a mall would encourage them to visit the mall's shops more often. Restaurants stand to be even bigger winners, with 73% of respondents suggesting they will stop by for lunch or after work.
One thing is certain, successful mall owners will continue to adapt to consumer trends and implement new programs that create community-focused destinations and encourage guests to meet, eat, be entertained, shop, work and reside – all in one place.