Strip Centers Reap The Rewards Of A Retail Revival As Tenants Flee Traditional Malls
Strip centers are the main beneficiaries of a recent brick-and-mortar retail renaissance as stalwart chain and department store tenants flee their spaces in traditional enclosed malls and head for the open air.
Retailers like Gap and Sephora, as well as department stores like Macy's and Bloomingdale's, are moving into strip centers or designing new formats to begin that move, according to Retail Dive. Citing Green Street data, Retail Dive noted commercial property values of open-air strip centers have risen 13% since just before the coronavirus pandemic, soundly besting traditional malls, which are up just 1% in value.
What's more, average mall vacancy rose from 4.9% pre-pandemic to 7.2% in the second quarter of this year. Strip centers, by contrast, have seen far less precipitous increases, according to JLL data reported by Retail Dive.
Over the past 13 months, two mall owners, PREIT and CBL & Associates Properties have filed for bankruptcy. Meanwhile, European mall giant Unibail-Rodamco-Westfield announced in February it would begin selling its major U.S. properties next year. Though foot traffic was up 32% year-over-year at malls for the week ending Dec. 1, RetailNext data showed it was up almost 39% at non-mall stores.
Mall owners are throwing a variety of different tactics at the wall to figure out how to use the enormous square footage they own. That means, in some cases, turning their vacant malls into distribution hubs, town centers and mixed-use properties, Retail Dive noted.
Those malls that are able to take control of the department store spaces without violating co-tenancy agreements will be able to repurpose their space, JLL Senior Managing Director Chris Drew said at a National Association of Real Estate Editors conference earlier this month.
“There are the malls where you don’t have control of those boxes, or the underutilized portions of the space, and those are going to have to die," Drew said. "They are going to have to die, and for some owners, it is going to get worse before it gets better.”
