More Closings, Improved Vacancy Rate into 2017 According to Cushman & Wakefield, the US shopping center vacancy rate continued an improving trend during 2016, with the Q1 2016 vacancy rate at 7.9%; Q2 2016, 7.6%; Q3 2016, 7.4%; and Q4 2016, 7.3%. Vacancies were 7.1% during Q2 2017. New shopping mall construction, as measured in total square footage, declined during 2016 to 25 million SF, a decrease of 9% from the 27.5 million SF built during 2015. Of the 6.6 million SF delivered during Q4 2016, 5.5 million was occupied upon completion. According to the International Council of Shopping Centers (ICSC), 2016 net operating income increased 4.9% for shopping centers and 1.5% for malls YOY. Base rent increased 6.5% to $19.17/sq. ft. and 1.3% to $27.30/sq. ft., respectively.

A Painful Evolution A retail analyst quoted by CNBC predicted that of the roughly 1,100 enclosed shopping malls as of May 2016, 400 will close within the next several years due to an oversupply of mall space and the loss of key anchor tenants, especially department stores. According to Deutsche Asset Management, mall sales for entertainment, theaters, personal care, sporting goods, personal service and drug/beauty increased during 2016, while home furnishing, toys, jewelry, books, apparel and restaurants decreased. Although retailers may fear that customers find products in-store, and then purchase online, the reverse is more often true. When asked how often they browse online, and then buy in-store, 15% said all the time, 26% most of the time and 50% sometimes.

Developing New Models A short-term solution to store vacancies is to fill empty spaces with pop-up stores, which adds excitement for mall shoppers. A long-term solution is to create outward-facing stores to increase interest from potential shoppers who are driving by the mall. Some malls are changing their focus from general shopping. Food-based malls are dining destinations, bolstered with non-food retail. Others are wellness-centered. Some mall owners are razing and converting properties into mixed-use, open-air centers. More open-air shopping centers are being built, with a mix of retail space and offices, restaurants, residences, parks, grocery stores, entertainment and hotels to create a community center/destination. Empty department stores are transitioning to mixed use.

Revitalized and on the Move Public real estate investment trusts (REITs) own 80% of malls in the US, but only 10% of strip centers. Individuals in their 70s and 80s own many, so they are likely to sell. Defunct and failing urban malls and shopping centers are being revitalized in downtown areas, near transit stops and in urban residential areas. Increasing rents in urban areas attract higher-income residents, plus shoppers who work, but don’t live, in the city. Because of increasing urban rents, more people are moving to the suburbs, which will need more shopping. The fastest growing suburbs are Montbello, CO (Denver); Wylie, TX (Dallas); Dublin, CA (Oakland); Daffan, TX (Austin); and Palm River, FL (Tampa).

Strip Centers Still Attract Retailers and Shoppers During Q2 2017, the national vacancy rate for community and neighborhood centers was 7.8%, a decrease from 8.1% YOY. Strip center vacancies held steady at 6.9%. Average asking rent increased 0.3% during Q1 2017. The outlook for strip centers is good for the next several years. The biggest risk in this category is increased store bankruptcies. Centers anchored by grocery stores and with service-oriented tenants are more resistant to recessions and ecommerce competition. A growing trend is luxury strip centers, with a mix of high-traffic-generating stores, such as Apple, Nike and Nordstrom, with farm-to-table and other hip food offerings and owner-operated, non-chain boutiques.

Catering to a Cross-Section of Consumers More than half of the US population growth from 2000 to 2010 was among Latino-Americans, and this is projected to continue. One company saved ten struggling malls by changing them to cater to Latino-American families. Millennials care about corporate responsibility and crave social interaction and experiences over products. Shopping centers can create community events, support local charities and increase salon, restaurant and entertainment tenancy. The top demographic to prefer shopping in-store is Baby Boomers, at 84%. Shopping centers that offer conveniences, such as valet parking, parking shuttles and easy-to-navigate centers, will score points with them.

Advertising Strategies Advertise your shopping center as a social experience, mentioning restaurants, any community lessons or events and entertainment choices. Sponsor nighttime events for the community, such as concerts, entertainment, food festivals and fashion shows, featuring products and food from mall retailers. Create a shopping center bingo contest, with a card listing the stores. Consumers’ cards are punched when they make a purchase. Cards with the requisite number of purchases are entered in a drawing for a $200 mall gift card.

New Media Strategies Create a human scavenger hunt event. The shopper who finds the most people he or she knows at the mall on a particular day, as evidenced by mutual photos posted on social media with the center’s hashtag, wins a prize. Invite well-known YouTube and Instagram stars to signing events where they can also sell their merchandise to increase mall traffic. Hire a professional photographer/videographer to record videos of mall events. Post these on social media to show the size, enthusiasm and interest of the crowds, and to promote similar future events.