Imagine 16 empty malls of the Americas. This is more than 90 million square feet of space that needs to be filled by mall owners who have been hit hard by 2022. This is no easy task. Dozens of retail chains have been cut or closed, and if the latest pandemic wave scares away shoppers, the situation will not get better.
Therefore, landlords are seeking businesses that have little or no relationship with shopping. Casinos, amusement parks, medical facilities, storage rooms, hotels, schools, offices and residences are all fair games, because even healthy shopping malls are forced to reconsider their game plans for next year and beyond.
Greg Maloney, chief executive officer of real estate services company Jones Lang LaSalle's Americas retail business, said: "By 2030, you will see that most shopping malls will no longer be considered shopping malls." Will be considered a mixed-use asset."
They might end up looking like the largest American shopping mall in the United States, with a layout that includes the Nick Cosmos and Aquarium, or like CBL Properties in Chattanooga, Tennessee. Back in August, the owner of about 100 lesser-known shopping centers and shopping centers added 80,000 square feet of Hollywood casino to the former Sears site in York Square, Pennsylvania. It brought in industry giant Penn National Gaming Inc., with 500 high-tech slot machines, two dozen table games and Barstool Sportsbook.
CBL has reason to believe it might help: A Live! The casino that replaced the old Bon-Ton department store at the CBL Westmoreland Mall near Pittsburgh in November 2020 generated double-digit traffic and sales in 2019.
That was after CBL went bankrupt in 2020 under the old model. The model failed because it relied heavily on department stores such as Bon-Ton and Sears to prevent shoppers from defecting to online stores. Hundreds of anchors and thousands of small retailers were closed during the pandemic, forcing CBL and at least two other major US shopping malls to go bankrupt.
Results: According to data from Jones Lang LaSalle, the national vacancy rate in the second quarter of this year rose from 4.9% before the pandemic to 7.2%. For the lowest-level "C"-level shopping malls, the vacancy rate was 12.4%. Even with the return of some shoppers, shopping mall rents have hardly changed since the first quarter of last year, rising by only 1.3%. This does not help companies such as Washington Prime Group and Pennsylvania Real Estate Investment Trust, which are trying to reverse the situation after bankruptcy.
A representative stated via email that CBL completed the Chapter 11 case in November and re-developed more than 45 properties since 2015, including the placement of an Aloft hotel on a property in Chattanooga. It is considering the redevelopment of mixed uses, including grocery stores, hotels, multi-family homes, healthcare, education, and offices.
Sometimes reusing stores is not feasible, so in early 2020, CBL decided to dismantle a closed Herberger's in Bismarck, North Dakota, to make room for a pharmacy and restaurant, including a family of five and a Fulai chicken.
Vince Tibone, a senior analyst at Green Street, a commercial real estate analysis company, said: "Whether it's in a good shopping mall or a bad shopping mall, from a real estate perspective, the best option may be to develop an apartment. "But not everyone can do this. Converting large spaces requires funds and sufficient time that operators may not have. For example, many former Sears stores remained vacant more than three years after the business filed for bankruptcy, Tiborn said. Maloney of Jones Lang LaSalle said that a thorough overhaul may take ten years.
Given the weak profit outlook and the reluctance of new tenants to move in, it is not surprising. Green Street's forecast of net operating income growth for even the best shopping malls is moderate, with 2.1% in the near term and 1.3% in the long-term, with negative growth of Grade B and Grade C centres.
"The occupancy rates of CBL and PREIT have been generally below average for a long time," said Bloomberg Information analyst Lindsay Dutch. "I expect that increasing occupancy rates will still be a challenge for low-quality shopping mall portfolios."
Some landlords have entered into deals with tenants and agreed to charge a certain percentage of sales instead of a fixed amount. For PREIT, “This is good for us,” Executive Vice President Heather Cromwell said in an interview, because sales increased by 17% compared to 2019.
Cromwell said that starting about five years ago, the mall operator tried to deal with retail bankruptcies and bankruptcies by taking back property from troubled chains. This includes replacing Sears, Massachusetts with Aldi and Burlington Coat Factory.
The bond and stock markets are sending signals of suspicion. Since its bankruptcy in December 2020, PREIT's stock price is only slightly higher than $3, and it is now hovering around $1.25. Washington Prime, which is taken over by creditor SVPGlobal, has seen its senior unsecured bonds maturing in 2024 have fallen to one-third of its value. The Prime Minister of Washington declined to comment.
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