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Open mall vacancies in the United States have fallen to historically low levels, defying expectations of a retail collapse due to the rise of e-commerce.
Landlords of complexes anchored by big box chains, discount retailers, and supermarkets have gained the ability to raise rents as their leases expire. New construction has been hampered by high interest rates and high construction costs.
Only 6.2 percent of outdoor mall space is currently available for lease, according to real estate data firm Costar, the lowest percentage since it began tracking availability in 2006. This trend contrasts with enclosed malls, where vacancies are increasing.
Brandon Eisner, head of retail research at Newmark, a commercial real estate brokerage, said the scarcity of the market has disproved long-held beliefs about retail properties.
“They will say”retail exaggerated. Retail is struggling. E-commerce will take over traditional retail. “None of that was really true,” Eisner said.
Retailers plan to expand further in the coming years, led by discount chains favored by inflation-weary consumers looking for deals. Off-price apparel and decor chains Burlington Stores, Ross Stores and TJX, parent of the Marshalls and TJ Maxx department store chains, added 339 U.S. stores last year. Walmart intends to add 150 U.S. locations over the next five years.
“I would say real estate is tight. There are not a lot of new centers being built. For us, there is increased interest from other retailers and the types of properties that we normally prefer,” Michael Hartshorn, president of Ross Department Stores Group, told analysts in November. “.
This demand for stores comes despite the rapid growth in e-commerce, which enables consumers to shop from home. U.S. e-commerce sales in the third quarter rose 7.5 percent year over year to $289 billion, outpacing a 2 percent increase in total retail sales, according to the Census Bureau.
But e-commerce sales represent less than one-sixth of total sales in the United States. Traditional retailers are discovering that stores are convenient hubs for dispatching online orders and processing customer returns. E-commerce giant Amazon this year added 21 brick-and-mortar Amazon Fresh grocery stores that accommodate in-person and online shopping.
“If you want to fulfill as many grocery needs as we do, you have to have a collective physical presence,” Amazon CEO Andy Jassy said earlier this year.
The strong demand for open-air malls, which are usually storefronts facing parking lots, contrasts with the weak fortunes of many indoor malls. Fort Macy's Mall Plans Closing 150 stores.
“The renaissance in our industry has been driven by fundamentals and value. It has not been driven by Louis Vuitton and Chanel,” said Adam Evchin, CEO of DLC, which owns dozens of malls.
Gloomy prospects loomed for malls in the years following the global financial crisis, with the collapse of major retailers such as Sears. Analysts spoke of a “retail apocalypse.” The lockdowns that followed the arrival of the coronavirus have exacerbated concerns about the future of in-person shopping.
At the same time, fewer new centers were opened. Green Street, a real estate research firm, said builders added an average of 0.6 percent annually to mall inventory between 2009 and 2023, which is far less than the 2.5 percent of new supply added annually between 2001 and the financial crisis in the United States. 2008.
“There has been very little new construction in the last 10 years. This is probably the biggest driver of change in the economy and the pricing power of landlords, literally,” said Jeff Edison, CEO of Philips Edison, owner of a listed shopping center in New York. All over the country.”
As an alternative to new space, retailers with growth ambitions have moved into buildings vacated by failed competitors like Bed Bath & Beyond, which had 480 locations when it applied for Bankruptcy In 2023.
Mall rents have averaged nearly $18 per square foot this year, according to CoStar, exceeding the highs reached before the financial crisis. Open-air malls have become much cheaper than indoor mall rents, now requiring an average of $3.52 more per square foot. JLL, a commercial real estate brokerage, said new leases were signed at rents 32 percent higher than initial rents for expiring 10-year leases.
Green Street estimates that rents in the 50 largest markets would need to increase by about 65 percent on average for new construction to become profitable. “At current market rents, the developments are unbeatable in any market,” the company said.
