With A New Owner In Unibail, Westfield's Malls May Expedite Their Shifts To Lifestyle Centers

Mall operators have become extremely selective in their real estate footprint, moving from regional assets to super-regional assets in an attempt to position themselves for success when e-commerce and experiential retail are forcing traditional malls out of the game. 

That shift in strategy laid the groundwork for the Unibail-Westfield merger, as well as Brookfield’s interest in acquiring GGP.

Unibail’s $16B acquisition of Westfield Corp. will create the world’s largest operator of shopping malls. The deal gives European mall giant Unibail entry into the U.S. retail market with ownership of some of the most prominent mall assets in the country.

For Westfield, the transaction was a strategic move in a decade-long shift in its operating paradigm to position itself for success as retail real estate continues to deal with challenges from e-commerce, forcing malls to reinvent themselves to meet the demands of the modern marketplace.

Colliers International U.S. Chief Economist Andrew Nelson said the Unibail-Westfield merger is more a matter of breadth than scale. Westfield has pruned its holdings in recent years and owned 35 malls at the time of Unibail’s announcement. But these are among the best-performing malls in the country.

“To be a dominant player in the market, you need to be in the right places, not in every place,” Nelson said.

Nelson said it makes sense that the dominant mall operators are scaling up and locking in their positions in the marketplace. But the number of marquee players in the mall space has declined, and those players want access to the best markets and retailers. Nelson said the combined Unibail-Westfield platform will give the new company a global reach, opening the door to attract the strongest retailers to its portfolio.

Nelson said department stores — which have been affected the most by the rise of e-retailers — will not find themselves in Westfield malls in the future. This year has been one of reckoning for U.S. retail, with an unprecedented wave of big-box retailers and department stores in particular going bankrupt and shutting multiple stores across the country.

“The rate of closures is what you typically see during a recession, not in the ninth year of an economic expansion,” Nelson said.

That has left a ton of vacant space waiting to be redeveloped. Nelson said Westfield may be inclined to follow the lead of Simon Property Group, which has been a market leader in buying out leases of underperforming retailers, dividing larger department store footprints into smaller storefronts and making its malls more dynamic and geared toward the lifestyle needs of today’s consumer.

Quantum Real Estate Advisors President Chad Firsel said he sees the Unibail-Westfield merger as a possible land play. The U.S. is over-retailed by 3B SF, and the country has more retail real estate per capita than any other nation by 200%.

“Mall sites need to be other plays,” Firsel said.

Nelson sees opportunity to monetize a mall by converting space to better uses that may not be retail, or by selling off excess parcels for redevelopment. Firsel said this may become more attractive as malls continue to lose retailers and municipalities collect fewer tax revenues from malls.

Sperry Van Ness Chicago Commercial Senior Vice President Deena Zimmerman said Westfield and other major mall operators are changing with the times, and now is a good time for operators to think outside the box to curate an experience.

“Imagine going to a mall for a dentist appointment, [having] your eyes checked or see[ing] a chiropractor while your kids visit a bouncy house shop. Westfield is in a good position to redefine its malls as lifestyle centers,” Zimmerman said.