‘Who The Hell Am I?’ Top Malls Are Back, But Ongoing Identity Crisis Threatens To Pull Others Under

Retail experts were shouting “Dead man walking!” about America's malls even before a worldwide health crisis dealt what many expected to be the knockout punch.

But new data indicates the sector didn’t hear no bell. 

The nation’s top class of malls has caught its breath and found itself again after a well-documented identity crisis that saw consumers shift purchases from brick-and-mortar buys to clicks and keystrokes on computers and phones. A new report shows that consumers are flocking back to those centers, lifting overall mall foot traffic to its highest level since the pandemic began.

Yet some of that has come at the cost of hundreds of other formerly hopping centers failing to remake their business models, either closing outright or barely holding on, and clearing the field. And even for those owners that have remade their images and refilled their rosters, looming debt maturities could threaten fragile victory as retail income streams grow more diverse and less predictable. 

“Amidst the ‘demise of the mall’ narrative that dominated so strongly pre-pandemic, we need to tip our cap to these top-tier mall owners who have made really, really smart decisions, saw where the winds were shifting and were able to align really well,” said Ethan Chernofsky, senior vice president of marketing at analytics firm Placer.ai, which released a report late last month showing visits to shopping centers were only 2.3% lower than they had been in 2019, the smallest gap since the onset of the pandemic.

“They're occupying a really important, specific space that is driving their success,” he added.

According to Placer.ai data, the visit gap for indoor malls has shrunk from more than 15% below pre-pandemic levels in 2021 to 5.8% today. Meanwhile, open-air centers have narrowed the gap to 1%. Both numbers were driven by strong performance at so-called Class-A centers that have seen the strongest rebounds of all.

A resurgence of activity is also being felt in more robust leasing. Top-tier malls had a 94.9% occupancy rate by late 2023, nearly matching occupancy in 2019, according to a Green Street annual mall grade report.

But lower-class malls still largely continue to struggle. Those malls experienced average occupancy of 82.3% in 2023, according to Green Street’s retail database. The database features roughly 350 malls graded C+ and below, most of which it expects to shutter in the next two decades.

As of last year, the total number of U.S. malls had dwindled from about 2,500 in the 1980s to 700, and Green Street estimates between 15 and 20 malls will close annually, matching the cadence of closures since early 2018.

That has helped drive shoppers to a smaller number of regional centers. But those malls that survived — at all grade levels — have also had to dig deep to claw back consumers once believed lost to e-commerce while accepting that their identities have changed.

“It goes back to ‘You can't fight the market and win,’” said Liz Holland, CEO and general counsel at Chicago-based property management firm Abbell Associates, which specializes in retail and office properties. “Are these pieces of real estate just finally meeting the needs of the people in the trade area and that's why they're being successful? That's 100% the answer.”

Successful mall owners are thinking more creatively about their tenant makeup, establishing distinct brands and identities to target specific customer segments, Chernofsky said.

Owners of top-tier malls are focusing on only the best tenants and experiences that drive urgency, he said. In some cases, that has meant addition by subtraction.

Tenants that traditionally made homes at top-tier malls, specifically in apparel and beauty, are getting cut as those centers establish clearer identities and bring in a more varied mix of experiential tenants and pop-ups, Chernofsky said. Those malls are mixing up their formulas with concepts like ax-throwing spots, gyms and Tesla locations, he said.

The pushed-out tenants, including a wide swath of once-must-have apparel chains, are moving to “be the star of that B+ mall show,” elevating the game of lower-tier malls that historically struggled to attract those businesses, Chernofsky said.  

This “waterfall effect” could benefit malls of all types, Chernofsky said. But less desirable malls sometimes fail to accept their identities, instead attempting to compete out of their weight class. 

“If I'm a mall that is a B-class mall that is not going to compete with the super regional mall nearby or their top-tier luxury [mall], I need to look in the mirror and say, ‘Who the hell am I?’” Chernofsky said. “‘What's the audience I'm serving, and how can I best serve that audience?’ If you lean into that opportunity, I think there's a lot of promise, but you have to lean into the opportunity.” 

The waterfall is pushing some retailers downstream to outlet malls they may not have previously considered.

Many brands only considered enclosed, full-price channels, but now they are making homes in outlet spaces, said Justin Stein, executive vice president of leasing at mall REIT Tanger Outlets. This allows retailers to reach consumers with different shopping priorities centered around buying key brands at value, he said. 

“The outlet shopper is so brand-conscious. They don't go to our centers to shop for a pair of black leggings,” Stein said. “They want a pair of Lululemons.” 

The evolving tenant mix at malls of varying types comes alongside an increased focus on a cohesive identity that has helped to combat a longstanding critique that malls looked and felt too similar to one another. 

“If I blindfolded you, walked you into a mall in 2005, spun you around six times and unblindfolded you, you would look at the stores and you could be anywhere in America,” Holland said. “There was no distinguishing feature of those goods that marked you being in one place or another, and I think people got bored.”

Holland pointed to the tenant makeup at the redone Navy Pier in Chicago as a good example of a shopping area with a distinct identity that draws people interested in local products. Navy Pier features stores with offerings inspired by the city’s architecture, history and sports, in addition to local food stalwarts like Garrett Popcorn and Billy Goat Tavern. 

Successful centers have embraced the local flavor, culture and values surrounding their assets and curated offerings to that area, said Lanné Bennett, executive vice president at Los Angeles-based consulting and brokerage firm Urbanlime Real Estate. 

“People don't want just a homogenous thing,” Bennett said. “People want something cool and local and unique — and a reason to travel and go out of their 5-mile radius. That's what's going to make the difference here.”

While many mall owners are considering conversions to mixed-use assets or another asset class entirely, the malls avoiding that fate and staying completely or mostly retail-focused are able to bring in successful retailers known more for their e-commerce presence, Holland said. Online retailers like Warby Parker, Alo Yoga and Bonobos are signing leases at traditional malls and drawing their virtual followings into physical spaces, she said.  

Some predicted that online retail would completely kill brick-and-mortar shopping, but Holland said the internet works best as an incubator for retail, not as the sole means of sales. 

“They're bringing these online retailers into the shopping mall in ways that 10 years ago would have been unheard of because the internet was going to eat everybody's lunch,” she said. 

For years, malls were being outclassed by new assets developers were delivering elsewhere, which provided retailers options to move to newer, shinier digs, Holland said. Because of the purpose-built nature of mall assets, it became hard for some malls to stay relevant.

“It was very difficult to fight that obsolescence because the better mousetrap was always going to be built up the street,” she said.  

It’s easier for owners to fill vacant space in the current mall environment because deliveries are on a swift decline.

Mall demolitions outweighed deliveries in the fourth quarter, with inventory declining by 400K SF, according to a JLL U.S. retail outlook. The demolished space also helped to reduce vacancy by 40 basis points quarter-over-quarter to 8.5%, the lowest level since 2021, according to JLL. 

Now, as developers build less new space and demand for different types of retail grows, retailers and landlords have grown more open to more flexible uses of existing assets, ushering in more pop-ups and short-term leases, Holland said. 

Pop-ups are a great way for a retailer to decide if a location is good for them and for a landlord to evaluate how a tenant fits their tenant mix before they spend substantial capital to put a retailer in space, Holland said. They have driven a substantial number of visitors to certain malls in short-burst trial runs: Foot traffic at Woodfield Mall in Illinois, which hosted a three-day pop-up from fashion retailer Shein from Dec. 15 through Dec. 17, saw an 82.1% foot traffic spike on Dec. 16, according to Placer.ai. 

Over a longer period, Ikea has seen success with a six-month residency at the Rosedale Center in Roseville, Minnesota. The retailer opened its store on Feb. 16, and the first week of the pop-up sparked a 12.9% growth in overall mall visits over the January baseline. Three weeks after the pop-up opened, visitor growth was 10.4%.  

But there is a financial instability that accompanies the fast-moving, short-term offerings consumers demand — one that spells trouble for efforts to juice foot traffic.

“What Placer doesn't show is what those income streams look like for the landlord,” Bennett said. “Those deals are not the same deals that we were doing even five years ago. That's the pain point that I think we're getting ready to see.”

When Bennett looks to ink long-term deals for the experiential or restaurant tenants she represents, she makes a point to drill into the financials of the ownership, with a keen eye on more generous and shorter-term lease deals.

The reason? Bennett said there are an “insane” number of CMBS loans on malls set to mature soon, and she wants to make sure she understands who is going to own the property in 10 years. 

There are over $20B in maturing mall CMBS loans over the next four years, according to Green Street, and only 33% of C mall CMBS loans and 60% of B mall CMBS loans are performing. When those loans mature, shaky financials could force some lenders and owners to make deals, and properties could change hands. 

A shift in ownership can shake up the values system anchoring the tenant mix of the mall and its identity, Bennett said. 

“People that own malls are shepherds because they're taking care of [them] for the community,” she said. “But what's right for the community, right for that area … it isn’t always right for the boardroom, the bottom line, the NOI.” 

If financial straits cause ownership of well-curated assets to change hands and a new owner comes in and throws that out the window or attempts to follow a familiar corporate playbook, the malls will likely struggle and be sold off for parts.

When or if that happens, the “death of the mall” narrative is likely to rear its head again, Bennett said.

“[Malls] are back — for now,” Bennett said. “I don't know how long they're going to stay back.”

CORRECTION, APRIL 8, 1:30 P.M. CT: This story has been updated to correct the location of a shopping mall.