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The shopping mall’s savior is starting to eat itself

Restaurants, one of the supposed saviors of regional malls, have been hurt in the past 12 months by too much expansion and a slowdown in consumer spending.

Stephen Wall’s restaurant chain Pho is the kind of tenant that mall landlords would love to attract. The Vietnamese menu is right on trend, the business is expanding and, even better, it has a track record of success in shopping centers.

Yet he thinks that even restaurants like his won’t be the savior of malls suffering from the rise of internet retailing and mobile phone addiction.

As competition from the likes of Amazon.com Inc. and Asos Plc intensified, British mall owners looked to food as a way to stay relevant. People would come to the restaurants to eat, buy some clothes in the shops while there, and the extra spending would allow the landlord to boost the rents. A simple, virtuous circle.

Instead, food and beverage operators have been hurt over the past 12 months by a combination of rapid expansion and a consumer-spending slowdown. An influx of private-equity investment into restaurants led some chains to open too many outlets that aren’t breaking even. Popular names like Gourmet Burger Kitchen, pasta place Carluccio’s and the Jamie Oliver chain — often found at big malls like Westfield and Bluewater around London or Manchester’s Trafford Centre — have been among those suffering. Nationwide, the number of restaurants going insolvent rose 24 percent last year, compared with 2017.

 

 

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In a U.S. mall owner’s world, ‘boring’ is actually pretty good

Mall landlords, besieged for the past two years by the rise of online shopping, are trying to push a new narrative of improving sales and increased demand for empty space at their properties.

Second-quarter earnings results for the biggest owners were largely in line with expectations, according to DJ Busch, an analyst at Green Street Advisors LLC, a research firm that specializes in real estate investment trusts. And that’s good news for an industry that’s struggling to stay relevant.

“We are pleasantly surprised — boring is pretty good in retail,” Busch said. “Incrementally, we’re moving in the right direction, but it’s going to take several quarters to get back to speed and get some of these centers leased backed up.”

U.S. mall REITs have been beaten up as the growth of e-commerce and a surge in retailer bankruptcies and store closures upends their business model. In the past 24 months, a Bloomberg index of eight regional-mall owners plunged 25 percent through Monday, compared with a 3.3 percent decline for all REITs. After a brutal 2017, landlords are trying to paint a rosier picture and convince investors that the worst is behind them.

“Demand from tenants for space in our highly productive centers is increasing,” David Simon, chief executive officer of Simon Property Group Inc., the largest U.S. mall owner, said on a call with analysts last week. “We continue to redevelop our irreplaceable real estate with new, exciting, dynamic ways to live, work, play, stay and shop that will further enhance the customer experience.”

 

 

Read more on Bloomberg

 

 

 

Mall tenants had an out when giants like Macy’s left. Now landlords bar the door

The only thing more dangerous for America’s malls than a string of apparel-chain bankruptcies is when the trouble hits department stores.

Retailers like J.C. Penney Co. and Macy’s Inc. are considered “anchors” that keep malls humming and foot traffic flowing. They’re so important to the ecosystem that smaller tenants may refuse to set up shop without a promise that the anchors will stick around: Many leases include so-called co-tenancy clauses that let them cut and run or pay less if those key tenants depart.

Now, many landlords are pushing to eliminate or narrow the escape clauses in the wake of mass department-store closings. That means less flexibility for the remaining tenants.

 

Read more on Bloomberg

 

 

The future of the shopping mall is not about shopping

When Cirque du Soleil announced plans this week for a “family entertainment” concept inside a Toronto mall, it said a lot about the future of shopping centers.

The 24,000 sq.ft. space, called “Creactive”, will be a circus-inspired playground with a range of activities from juggling to high-wire – allowing fans to “peek behind the curtain and imagine themselves stepping into our artists’ shoes”, according to Marie Josée Lamy, producer of Creactive. “Hanging at the mall” will take on an entirely new connotation as shoppers take to the flying trapeze. And that’s the point.

No longer is it good enough for malls to be passive places to buy stuff – they have to be engaging places to do stuff. Otherwise, this particular retail format will be relegated to relic status – “a historical anachronism, a 60-year or so aberration that no longer meets the public’s, the consumer’s or the retailer’s needs”, as developer Rick Caruso mused.

With that point in mind, I draw your attention to Exhibit A: Randall Park Mall in Ohio. When it opened in 1976, Randall Park Mall was briefly the world’s biggest shopping center. It quickly lost relevance however, and by 2000, Randall Park Mall’s vacancy rate was 92%. Fast forward to 2017 when it was revealed that Amazon was constructing a 855,000 shipping center on the same site. Online triumphs over offline, or “software eats retail” as Netscape founder and venture capitalist Marc Andreessen memorably put it. But it doesn’t have to be that way.

 

 

Read more on Forbes