What’s the best way to reposition an empty mall?

The image of a shuttered ghost town that many American malls have become is very different from the bustling epicenters of economic and social activity that they once represented. “The mall, in its heyday, was a portal to the lifestyles people could aspire to,” writes Misty White Sedell of the Los Angeles Times, “a playground for discovery”. Pandemic shutdowns dealt a devastating blow to brick-and-mortar retail, but the American mall was losing out to e-commerce long before that. Now, many malls are an economic deadweight, and the question of what to do with them continues to baffle investors and landlords. If malls will never return to their place as centers of consumption, how can they be better used?

Any time a property of this magnitude sits vacant, it’s a huge problem for the municipality it’s in. A deserted mall cannot generate tax dollars for its locality any more than it can generate rent for its owner and revenue for its shareholders. At the same time, the outstanding mortgage debt of a mall that has gone bankrupt can outweigh the value of the property itself. All in all, the prospect of occupying a space of this scale was such a headache, especially with the decline of brick and mortar undermining investment confidence, that many lenders simply chose to leave unused deprecated properties. So what to do with these skeletal remains from a bygone era?

heavy blooming

Before the onset of the COVID-19 pandemic, the global supply chain was already fragile, but the burden of subsequent lockdowns made it crack. As businesses desperately tried to cope with the sudden surge in online orders, a disastrous domino effect ensued. The system could not keep up with demand, causing all points of the transportation and logistics operation in the United States to fail. A deluge of shipping containers stacked on freighters, overflowing ports, and straining trucks and railcars until they hiss under the heavy weight. It quickly became clear that companies that relied on a localized supply chain could keep their heads well above water while others struggled to stay afloat.

Companies that found themselves in this global rush tried to recoup their losses by ordering as much additional inventory as possible to hedge against future downturns, but the problem of or putting all that excess stuff in caused a race for storage space. As of November 2021, 96% of existing industrial space was in use, and to meet demand, the United States would need an additional billion square feet of new industrial space by 2025, according to JLL. The demand for new spaces has caused sky-high bidding wars, eventually leading companies to get creative in converting other types of spaces to meet their storage needs.

Amazon, the online retailer that has led the crusade to snatch up as much vacant land and development space as possible, has spent nearly $60 billion in capital spending to acquire goods and equipment in 2020 Sure, Amazon had already boomed in recent years, but they had only spent $24 billion in capital expenditures to expand their real estate stock the previous year. Also, a significant portion of that $60 billion was spent on property purchases. Amazon is so convinced that e-commerce is the impending reality of retail that it plans to operate from the properties it has purchased for the next 30-50 years minimum, compared to the 10-15 that a lease would allow. they run. But Amazon didn’t limit its spending spree to undeveloped locations, they also bought up malls.

The speed and frenzy of Amazon real estate acquisitions may make it seem like Amazon was only buying land wherever they could only to solidify a plan later, but buying a mall with l he intention of turning it into a warehouse makes logistical sense. Not only do empty malls have an abundance of space, perfect for additional storage as more businesses pledge to sell their wares with the e-commerce giant, malls also have an inherent proximity. with major population centers.

Malls came to fruition in the 1950s when suburban development came to life as a place for shopping and socializing for suburban residents. This is how shopping malls have become the center of American culture. Amazon knows that the speed at which a package you order from Amazon gets to your doorstep depends on your proximity to a fulfillment center, so buying a property that was intended to be within reach of residential developments is an understandable strategy. Yet while this change may give hope to the cash-strapped mall owner, only a small number of these sales and renovations have taken place. As of December 2021, approximately 50 closed regional malls in the United States have been sold during the pandemic, most by lenders,” according to the the wall street journal, and the “limited number of ‘healthy’ malls sold may reflect unrealistic asking prices.” This is prompting many landlords to hold on to their underperforming properties in hopes of getting more out of selling their mall post-pandemic.

Tearing down the existing mall just to build an Amazon warehouse from scratch is also not an attractive option for mall owners who still have a pulse. Despite widespread closures of the retail giants of yesteryear (Sears, JCPenney, Macy’s, etc.), many mall owners believe there is a creative solution that could keep the lights on while boosting the shopper activity for small stores still in operation. If the industrial warehouse industry, which has outpaced other markets in the past two years, can’t breathe new life into shopping malls, what can?

call the doctor

In a trend known as “medtail,” reflecting the medical industry’s shift to retail properties, healthcare providers are increasingly choosing older storefronts for their offices and clinics. Landlords may not have been interested in this in the past for a range of reasons, such as regulatory burdens or the idea of ​​people with a contagious disease congregating on the property. But after an extended period of vacancy, landlords are a bit more eager to rent to deep-pocketed healthcare tenants.

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Medtail switching was a growing trend before COVID-19, but interest in preventative wellness grew as a new infectious disease upended the daily lives of people around the world. While these storefronts are not a replacement for hospitals, medtail can still help provide economical, specialized, and easily accessible facilities to local residents, and this convenience is a mall’s biggest selling point. “Convenience is key for consumers…even when choosing a doctor’s office to visit,” says GlobeSt’s Les Shaver, “This was revealed in a recent JLL survey, showing that 71% of consumers have traveled 20 minutes or less to receive care.”

Yet owners can go much further than converting individual stores into dental practices. When the Marketplace Mall in Rochester, New York lost its major retailers, the University of Rochester Medical Center came to the rescue. In a venture that has cost more than $227 million and several phases, the mall’s empty Sears store is set to become an outpatient orthopedic center. By November, the outpatient surgery center will open. The following spring will inaugurate the Centre’s Sports Performance and Rehabilitation Center, and in the fall of 2023 the ribbon for the four-story clinical space with 144 beds will be cut. At this time, the offices are currently open.

Marketplace Mall is not the first mall to be transformed into a medical center, but it illustrates a surprisingly beneficial symbiosis between the two sectors. The medical center gains a larger, more accessible location, the mall fills a void that will benefit its other tenants, and the community gains a facility that is more accessible and connected to where people are. Also, as more medical center facilities open, more employees and patients will follow, which means more potential customers in the active shopping center to which the medical center is attached.

When Misty White Sedell called America’s mall a bastion of “discovery” in her article for this LA Times, she was talking about fashion trends. Today, the shopping center is a veritable incubator of real estate discoveries. Amazon has been dedicated to deliberately underbidding its physical competitors in order to gain market share, but dismantling Amazon’s malls in order to build fulfillment centers is not the next phase in the life cycle of shopping centers. Malls still have a place in the retail landscape, and things like medical practice conversions could be one of the puzzle pieces that will reinvigorate them.


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Peggy P. Gilmore