From losing customers to e-commerce websites, labor shortages, the wave of the retail apocalypse, and the de-malling real estate trend. It has been a tough decade for the retail real estate industry. And with the COVID-19 pandemic and lockdown, things just got worse.
Retail real estate is having difficulties in keeping its brick and mortar stores and commercial complexes running for the past couple of years. Online shopping has become convenient among people. Thus, retail outlets are losing a huge chunk of their sales to e-commerce businesses. And since shopping malls are formed by a group of retail outlets, therefore, it eventually ends up suffering. As a result, trends like de-malling come into play.
But before we get into de malling real estate trends let us first understand what de malling actually means.
What Is The De-Malling Real Estate Trend?
De-malling could have different meanings based on the situation and business. In general, de-malling involves closing retail stores and repurposing or redesigning the whole mall to facilitate a new business.
The main reason for repurposing and redesigning a mall is to leave behind the traditional ways of operating a mall. The repurposing eliminates retail as a majority and introduces existing stores to a mixed-use property. It involves transforming mall spaces into apartments, self-storage facilities, office spaces, etc. Basically, de-malling is the transformation of mall properties and using it for any purpose other than traditional malls.
Another purpose of de-malling is the reconfiguration of enclosed malls and pushing the retail stores out in the open. It involves removing common area spaces, hallways of a mall thereby transforming it into an open-air mall or big box stores. This process also involves the transformation of shopping malls. But, in this case, it is used for retail purposes only.
Is the de-malling real estate trend new?
Truth be told, de-malling is not a new thing among retailers. It has been here for the past decade. Experts believe that the 80s were the golden age for shopping centers and commercial malls. Since then the industry hasn’t seen any kind of advancements or new improvements to the operations of the malls.
As we know the past 2 years haven’t been easy on shopping malls or in general retail real estate. Foot traffic is one of the most important factors in generating income for malls. Due to lockdown, the foot traffic of malls took a deep dive in 2020.
Moreover, retail stores were forced to shut down for a long time. E-commerce websites like Amazon have already been giving retail enough competition for the last couple of years. And the lockdown just blew their business out of proportion.
As a result, mall owners were suffering a lot with businesses closed for a long time. Most retailers couldn’t endure the losses, which ultimately led to closing down the shops. This led to a generation of vacant spaces which is even more damaging for the mall owners. Thus all these factors led to mall owners and landlords looking for survival strategies which eventually led to adopting the de-malling trend.
De-Malling Real Estate Trend: Effect on Commercial Real Estate
The US has recently observed a spike in the number of commercial properties that are being de-malled. Some of the well-performing malls are thinking about redesigning and transforming their properties to adopt the new trends.
Here are some of the important de-malling real estate trends that will govern the future of shopping malls and commercial real estate.
1. Mixed-use space
With a huge number of retailers closing down their stores and filing for bankruptcies. Retail spaces in malls are being left vacant. Therefore owners are trying to fill the vacant spaces by leasing to tenants who can afford it. This re-tenanting of retail spaces inside malls to office spaces, storage centers, or apartments is termed as mixed-use space.
Owners can take advantage of this mixed-use trend and save money by utilizing available square footage instead of keeping it vacant. Incorporating dining areas, and craft breweries between stores can make customers’ shopping experience much better. Moreover, having leisure and entertainment centers like bowling and theatres will enhance crowd attraction.
Mixed-use developments also aid in convenient lifestyles. It helps people get everything in one single place from shopping to dining, working, and relaxing. All of these come under a single roof making it a one-stop destination. Thus making it a preferable choice for customers.
2. Open-air malls
People might wonder about the need for turning an enclosed mall inside out. Since it is not a cheap process and the contents of the mall are more or less the same. In the past few years, there has been a lot of changes in the shopping patterns of US customers.
After the Covid-19 pandemic, people feel more safe and comfortable in open spaces. Moreover, open-air shopping centers have a more relaxing and modern approach than traditional malls. According to JLL, open-air malls gained a lot of popularity and managed to collect 46% higher rents than regional malls. In the last year, 17 million square feet of open-air malls have been constructed.
Open-air malls or strip malls are more cost-effective for owners to manage and operate than enclosed malls. Converting to open-air malls results in eliminating the need for central AC and lighting at every corner. Thus, reducing operational costs.
Moreover, the infrastructure of open-air malls increases the visibility of individual retail stores. This leads to an increase in foot traffic which is essential for keeping the business running. With significantly less vacancy rates, open-air malls are more appealing to retailers and a niche investment choice for investors.
The pandemic and the retail apocalypse had a huge impact on shopping malls and their stores. Tenants were failing on their monthly rents and closing down their shops. This was obviously bad news for the commercial real estate investment trusts.
The de-malling real estate trend led to the transformation of malls to survive with the help of other thriving sectors. And because of that real estate investment trusts(REITs) were quick to adopt these trends.
Hence, REITs are making changes to their mall properties to survive. Because of the e-commerce boom, self-storage spaces are growing in demand, and including them in vacant spaces will generate good revenue.
Those days are in the past when shopping malls meant only retail outlets and dining. The traditional concept of shopping malls is changing and is changing fast. With the de-malling trend, malls are getting a new facelift. And these changes look promising for the future of shopping malls as well as for commercial real estate investors.