Denver-Area Malls Reach A Crossroads, Seek New Strategies To Attract Activity

There was a time when hordes of shoppers would watch their children dart in and out of the Lego Store or Build-A-Bear Workshop at the Colorado Mills mall in Lakewood while others meandered between the Vans outlet or one of the sporting goods stores.

Now, those days seem like a distant past for most of the country’s malls, including those in Denver. There are still shoppers who wander the hallways, but the growing number of empty storefronts is illustrative of the crossroads at which Denver-area malls find themselves despite the overall strength of the city’s retail market. 

Operating costs are up, along with property values and taxes, but foot traffic remains below pre-pandemic levels, according to data from Morningstar Research Services. At the same time, some experts think e-commerce could take up as much as 40% of the overall retail market by the end of the decade. This scenario has presented some malls with a unique opportunity to rethink how they attract customers to their properties, according to Morningstar Senior Equity Analyst Kevin Brown. But it could also spell the end of many more, he added. 

“When people talk about malls dying, they’re really referring to the struggle that Class-C malls are facing, those with the lowest sales per SF,” Brown told Bisnow in an interview. “Class-A malls and Class-B malls are doing well. They’re outperforming the national average in terms of retail sales. And post-pandemic, my sense is that those trends have only heightened.” 

Before the retail world grew a major new distribution channel online, malls were a centerpiece of American consumer culture. They offered gathering places for teens and adults alike and provided a center of gravity in sprawling American suburbs. 

Some malls have essentially functioned as community centers where consumers have the opportunity to socialize outside of work and home, ICSC Vice President of Research and Public Relations Stephanie Cegielski told Bisnow in an email. 

But the number of malls across the country has been declining for several years, driven in part by evolving consumer behaviors and retail business needs. The Wall Street Journal reported that the number of malls in the U.S. has declined from around 2,500 in the 1980s to about 700 today, a decrease of about 72%.

The Denver metro area has similarly seen its number of malls steadily decline to just six over the past several years. The malls that have closed include Cinderella City Mall in Englewood, which was demolished in 1998 and eventually redeveloped into Englewood’s new town center. The Westminster Mall and the Villa Italia Mall in Lakewood were both redeveloped to serve as their cities’ downtowns. 

The decline of metro Denver’s malls stands in something of a contrast to the strength of the area’s overall retail market, especially in suburban areas. In the second quarter, CBRE found there was still “considerable tenant demand” for space despite the market’s low relative availability. The metro area’s triple-net asking rents were $19.77 per SF in Q2, which has remained fairly stable throughout the first half of the year. But suburban submarkets in the southeast and along Colorado Boulevard are seeing considerable demand, with average rents of $25.47 per SF and $28.10 per SF, respectively. CBRE also expects rents to increase in suburban areas throughout the remainder of the year as interest rates and construction costs remain elevated.

At the same time, evolving consumer and business needs are creating opportunities for malls to reimagine themselves for the future, Brown said. On the consumer side, shoppers are purchasing more of their goods online. In February, Forbes estimated that nearly 21% of retail sales will happen online in 2023, up considerably from the 5.8% share e-commerce registered in 2013. 

From a business perspective, Brown said retailers seem eager to find smaller spaces in high-quality buildings that can attract consumers in a number of ways. 

“Creating a mixed-use asset is something that retailers find really attractive right now,” Brown said. 

Brown added that Class-A malls like Park Meadows in Lone Tree are in the best position to capitalize on these trends because they can attract consumers to their property in a multitude of ways. Park Meadows not only features premium outlets like Apple and Tesla but also has high-end restaurants like Perry’s Steakhouse and Fogo de Chão. 

Brookfield Properties, which owns Park Meadows, also submitted plans to build a seven-story, 454-unit apartment building on the east side of the mall, BusinessDen reported in June. If approved by the city, the apartments would be near luxury outlets like Nordstrom and Crate & Barrel. 

Brookfield Director of Development Adam Benner told Bisnow the housing project is one way the company is looking to “meet the changing needs of today’s customers.” Benner added the company is looking to create a public plaza on the north end of the mall’s dining hall to increase customer engagement and building activation. 

“We’re really trying to turn Park Meadows into an 18-hour center from the 12-hour center that it is today,” Benner said. 

Bisnow reached out to Simon Property Group, which owns Colorado Mills, about the company’s plans for the mall but didn't receive a reply by press time. However, Brown said the company’s financials may offer a glimpse at what the company is thinking. 

Simon has owned a 37.5% stake in the mall since 2019, according to the company’s quarterly earnings reports. Its loan-to-value ratio on Colorado Mills of about 63% could give the company some room to negotiate more favorable terms with its lender, especially given the high-interest-rate environment, Brown said. Data from Moody’s shows that Simon has an outstanding balance of more than $32M on its loan for Colorado Mills that will come due in November 2024. 

“The alternative is that Simon — or another mall operator — turns their keys over to their lender, and banks have no idea how to run a mall,” Brown said. “It’s not like an apartment building where you can just turn around and sell it for what it’s worth.” 

Park Meadows is similarly leveraged. Brookfield has an outstanding balance of about $615M on its loan for the property that will come due in November 2024 as well, giving the property a loan-to-value ratio of about 51%, according to Moody’s. 

To Brown, the malls that will be successful in the future will be the ones that provide customers with desirable experiences rather than just a selection of premium outlets. That could mean adding restaurants and movie theaters to their tenant mixes or hosting entertainment events, Brown said. 

“The tradition of spending the day at the mall will still happen in the future, but it’s only going to happen at the highest-quality malls,” Brown said. “Lower-quality malls may have to take on lower-quality tenants, like a grocery store or a gym, to justify their existence.”