Mixed use is the new black at malls looking to pivot from an overreliance on retail, in general—and in many cases apparel stores, in particular.
With footfall on the wane and a realization in the retail community that the U.S. is overstored, mall developers are moving fast to find new ways to stay relevant. For some, they’re simply looking to remix their tenant bases, adding in more non-traditional occupants like gyms, call centers and theaters. In other more prime locations, the changes are more sweeping. There, property managers are jettisoning the mall concept in favor of a completely new animal. These evolved organisms include retail to be sure, but the footprint now also includes live, work and play opportunities.
One prime example is the King of Prussia mall in Pennsylvania. Not exactly a distressed property, the $2 billion asset has long been a draw and the envy of the industry. But even so, its owner Simon Properties is turning the space on its head with new hotels, apartments, offices and play spaces. The goal, according to CEO and chairman David Simon, is to boost the value above $3 billion.
Simon is pursuing a similar strategy with the newly opened Shops at Clearfork in Texas, which features retail, dining, entertainment and office space. In total, the company is redeveloping and expanding 31 properties for one simple reason.
“The math is the math. The opportunities are the opportunities,” Simon said, during the company’s Q3 earnings call. “We’ll continue to add different uses to our centers where we see the opportunity to generate accretive returns.”
Mall owners aren’t the only ones getting in on the action. In cases in which department stores own their own boxes, they too are looking to evolve. Macy’s is working with Brookfield Asset Management to redevelop about 30 properties, some of which will get the live/work/play treatment. Hudson’s Bay Company recently offloaded its Lord & Taylor flagship in New York to WeWork, from which it will lease space starting next year to create a hybrid property.
[Read more about Macy’s plans: Beyond Monetization, Macy’s Real Estate Deals Aim to Restore Vibrancy to Redeveloped Stores]
These companies are hardly alone in their quest to broaden the definition of what a mall is these days. In fact, a recent JLL survey found that nearly 30 percent of mall owners are adding secondary uses to their spaces. Of those, 40 percent have opted for residential space, 33 percent have added hotels and 26 percent have added offices.
Additionally, as they evolve, companies are also scrutinizing their dining options, entertainment offerings and community spaces. And while these landlords are more choosy about the retailers they bring in, JLL found that having a strong shopping mix remains important. A third of malls in the survey were actively targeting desirable retailers—and despite the challenges in the sector, apparel stores make the list. The report found that 52 percent of renovated malls upgraded or added new apparel tenants.
“Apparel retailers that entice millennial consumers, like fast fashion retailers H&M and Zara, are leasing top inline spaces,” the report stated. Luxury purveyors like Jimmy Choo and Versace were also in high demand at 20 percent of these locations.
[Read more about apparel’s place in the mall: Sure Apparel Will Still be Part of the Mall—Just a Much Smaller Part]
Sandeep Mathrani, CEO and director of GGP real estate company, said malls can’t afford to walk away from retail. “I think people tend to forget that if there was no retail base and there was no start of a community, you couldn’t attract those [other] users,” he said. “The mixed use only goes to where there’s the strongest real estate.”
He points to Pioneer Place in Portland, which now houses co-working space company WeWork, as an example. Mathrani said tenants like Louis Vuitton, Gucci, H&M and Zara made the deal attractive.
Traditional stores plus experiential hubs like Apple and fitness studios like SoulCycle are all an important part of the mix, he said.
“Every study shows you that every millennial actually prefers to go into a shopping center, they go hang out,” he said. “And so, you’ve got to create an environment for them to come and ponder and sit in the community.”