There is a growing perception that America’s malls are dying…but are they? In 2017, Credit Suisse predicted that 20% to 25% of malls, equating to roughly 220-275 properties, would close over the next five years. Additionally, the popularity of e-commerce has grown steadily for the past two decades, creating a new, more convenient way for the average American to shop. In 2000, e-commerce made up less than 1% of total retail sales. By Q1 2018, that percentage had risen to nearly 10%.
While a multitude of malls throughout the country have shuttered over the past decade and this trend is expected to continue, that doesn’t necessarily mean that the functionality of these buildings has ceased to exist. Malls, or the sites on which they are located, are being converted into entirely new uses: distribution centers, multifamily properties and even schools.
Perhaps mall space isn’t dying — it’s just evolving.
Did E-commerce Kill Malls?
First, it’s important to address the common perception that malls are dying solely because of the rise of e-commerce. Yes, the online shopping industry has certainly evolved what traditional, brick-and-mortar shopping looks like in America, but consider that the U.S. has the largest amount of retail space per capita in the world. In 2017, the U.S. had 23.5 square feet of retail space per person, nearly 50% more than Canada, who was the second largest on the list.
Andrew Nelson, Colliers Chief Economist, and Anjee Solanki, Colliers National Director, Retail Services have extensively explored the rise and decline of malls in America, and why retailers are in distress. “Shopping malls became popular as they provided an opportunity for national retailers to reach suburban consumers closer to where they lived. These sprawling real estate ventures flourished with well-established retailers as well as regional chains, serving as a draw, “anchoring” the malls and driving foot traffic and business to fellow retail tenants. This retail development formula held steady for more than half a century. But as malls multiplied and expanded, their tenant leasing strategies became murky — leading to one of the causes underlying the challenges facing so many American malls today: oversupply of retail space.”
The New Distribution Centers
Obsolete mall sites across the country are being converted into distribution centers. Think about the closest mall to you—it’s probably near or next to an interstate or major route, in close proximity to a population-dense area and is situated on a large parcel of land. All of these factors are also highly desirable for a different kind of space entirely: distribution centers.
Amazon is taking full advantage of these logistical goldmines. In two Cleveland, Ohio suburbs, North Randall and Euclid, the e-commerce giant has repurposed former mall properties into fulfillment centers, the latter of which is set to open in early 2019. Both centers are projected to bring a total of 3,000 jobs to the area. It’s somewhat ironic that the rise of e-commerce and a factor in the decline of malls, is now absorbing dead mall space and reviving employment in the process.
Former mall property is especially attractive for tenants like Amazon for another reason. E-commerce operations tend to have higher employee counts — two to three times more than traditional warehousing. This means that an e-commerce tenant looking for a distribution center is going to need greater parking — something that many traditional industrial properties lack. However, malls have abundant parking, which is an attractive feature.
While there are certainly opportunities to convert mall space into distribution centers, it’s important to note that this won’t work in every market and comes at a cost. Retail space is often the most expensive space in a market while warehouse space is among the least, especially when it comes to major markets.
Turning Malls into Communities
Distribution centers aren’t the only uses for a vacant mall property. In a Rochester, NY suburb, the Medley Centre was once a thriving mall where Sears was an anchor tenant. Now answering to the need for an aging population, the former Sears space was just recently approved for a 168-unit senior housing development. In another instance, the former Grand Avenue Mall in Milwaukee, WI, is being repurposed into a high-end apartment complex that includes retail, hotel and office space. And, Northwest of Chicago in Northbrook, IL, the Northbrook Court Mall is getting a major makeover as an open-air plaza with 500,000 square feet of luxury multifamily space in what used to be Macy’s. The project will also house a high-end grocery store, capitalizing on the live-work-play requirements occurring across the country.
From Malls to Schools and More
Some conversions of old malls into new uses are less predictable. In Concord, NH, Capital City Public Charter School started their inaugural school year on September 4 in a space that was once a department store at the Steeplegate Mall. Upon its opening, the school’s founder emphasized the uniqueness of the space and its alignment to the innovative culture of the school.
Going the entertainment route, developers in Virginia have recently announced their serious interest in utilizing the vacant Bristol Mall in Bristol, VA, as a casino, pending changes in the state’s legislation that will allow casino gaming. The property is a 540,000-square-foot former mall, and the casino would plan to take over 100,000 square feet of this space.
Have Malls Actually Come Full Circle?
It’s evident that commercial real estate is becoming increasingly more fluid than in the past. For decades, the mall was where American families went to congregate and get everything done: from haircuts to dining and clothes to Christmas shopping. While Americans still purchase the majority of goods and services in brick-and-mortar locations and probably always will, many malls no longer exist as the dominant shopping meccas they once were. The irony is that some of these obsolete malls will continue to play a role in the daily lives of American consumers — just in a completely different capacity.
This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.