The Resurgence of Malls

Published: 2023-09-19 00:00:00

Arbitrage Blog Image

Many malls have recorded robust occupancy levels and larger crowds than before the pandemic, according to a market analysis report published in June by Coresight Research. Over the past decade, the growth of online shopping has raised fears that the physical mall experience would disappear, especially for the younger generation and with closures from the pandemic.  

Coresight's investigation found that foot traffic in top-tier malls (centers located in affluent areas where a typical shopper has an annual income of over $200,000) was up by 12% in 2022 compared to 2019. These top-tier centers tend to feature newer brands and luxury retailers. During this same time period, top-tier malls reported an annual growth rate of 5% with $7.5 billion in total revenue last year. While lower-tier malls lagged slightly behind in foot traffic (up by 10%) and revenue ($6.4 billion), they experienced a larger growth rate of nearly 9%.

"Occupancy rates are the number one indicator of a mall's health," said Coresight's CEO Deborah Weinswig. On average, top-tier malls were more than 95% leased last year, while space in lower-tier malls were about 89% leased. These occupancy rates are still lagging slightly behind their pre-pandemic levels, but remain promising. So far this year, 4,432 stores have announced openings compared to 1,954 closures, resulting in a net of 2,478 openings.

Earlier this month, Tanger Outlets announced that its upcoming shopping center in Nashville, Tennessee, is already 95% leased.  Stephen Yalof, CEO of Tanger Outlets, said, "We have a handful of brands that are opening up in the outlet space that were formally digitally native brands." He added that when brands open physical locations, customers go there to test the products, "and then you get to make a better choice when it's time to actually make the purchase." This type of omnichannel marketing (where a brand has both a physical and an online presence) has been a major factor in increasing mall traffic.

Warby Parker, Allbirds, and Wayfair are just a handful of online companies that have opened or announced that they will be opening conventional retail locations in order to expand their reach to customers. "These types of brands realize that they were spending more per customer in acquisition online than they were to build a brick-and-mortar store and have that experience for their customer in a major metro market," said Kirsten Lee, executive vice president and director of luxury leasing at Brookfield Properties.

In 2020, lockdowns because of the pandemic spurred predictions that it would be the final nail in the mall's coffin. But a post-pandemic society has proven hungry for communal spaces. Dubbed "shoptainment," younger consumers are attracted to the entertainment of shopping; their restricted social lives during the pandemic has fueled this desire to have fun, social experiences.  "Covid taught us that we are absolutely wired for community," said Lee. "We have been doing this since the beginning of time, we want to be together. We have set up common areas of commerce for people to trade and meet, whether it was the town square or a bazaar."

The popular TV show American Ninja Warrior, for instance, opened an adventure park in Santa Ana, California's MainPlace Mall. The park allows mall-goers to try obstacle course challenges that are similar to those on television. MainPlace Mall saw its monthly visitors jump by 18% compared to the same period before the pandemic. Some other malls have included movie theaters, arcades, and mini golf courses to entice customers. Even single events can help with foot traffic. For example, at London's Stratford Centre, an Alice in Wonderland tea party created a 30% increase for in-store traffic.

"The mall should be a living, breathing organism," said Weinswig. Properties offering high-end dining with shopping and entertainment activities will continue to be important retail spaces, according to Coresight. The mall continues to evolve and redefine its offerings but, for now at least, it is far from obsolete.

Like this article? Share it with a friend!