Malls Are Struggling Across The Country. Why Does New York Keep Building More?

New York City is better known for street retail like Fifth Avenue and Bleecker Street than for the sprawling malls that populate other parts of the United States.

But while many mall owners — reeling from a wave of retail bankruptcies and soaring vacancies — are working to reshape their assets for a modern consumer, the mall concept, or a variation of it, seems to be, against all odds, gaining traction in the Big Apple.

In March, The Shops and Restaurants at Hudson Yards opened — a 1M SF retail complex in the $18B mixed-use mammoth. Developers Related and Oxford Proeprties do not refer to it specifically as a mall, although reviewers still do.

In 2016, Westfield World Trade Center opened, a subterranean mall encased in the Santiago Calatrava-designed Oculus building. It connects to a PATH station, a cluster of subway lines and Brookfield Place’s shopping center, which opened a year earlier following a $300M renovation.

Later this month, BFC Partners will officially cut the ribbon at Empire Outlets on the Staten Island waterfront, New York City's first outlet mall.

“It’s ironic [that] given the rest of the country is pulling back from malls — or at least trying to figure out how to pull back — you've got New York going in that direction,” said EY Executive Director Marcie Merriman, a cultural anthropologist and retail strategist. “A mall is a four-letter word right now.”

Certainly, many owners of American malls are bending over backward to find ways to set them up for the next evolution of retail. In some cases, that has meant razing structures and replacing them with mixed-use centers. In others, it has meant the introduction of coworking tenants or reimagining the space for residential units. 

Brookfield, which bought mall operator GGP in a $15B takeover last year, has indicated it plans to redevelop most of the assets into what company CEO Brian Kingston described as “mini-cities” on an earnings call last year.

Merriman thinks New York City malls are a different beast from the malls that have struggled so much in other parts of the country, likening Hudson Yards, Westfield World Trade Center and the retail portion at the Related-developed Time Warner Center at Columbus Circle to malls in Asia and Europe.

“They are unique,” she said. “They not the typical shopping centers of the past, but more lifestyle centers.”

Still, there is little leeway for missteps when it comes to retail in the city. Though home to some of the most famous, high-priced retail destinations in the world, the city has been pummeled by the effects of changing shopping behaviors.

Out of the 17 retail corridors the Real Estate Board of New York surveys twice a year in Manhattan, 15 of them saw year-over-year decreases in ground-floor rents, according to the industry group’s fall Manhattan retail report.

Pop-up shops have provided a way for landlords to plug vacancies for years, many have carved up large spaces into smaller pieces and are now no longer so reluctant to take a risk on established operators.

Meanwhile, retailers known for their scale are shrinking down; Target has announced multiple locations in the city and Ikea’s first urban-concept store in the country is coming to Lenox Hill. 

“New York City is not a shopping mall city, so this is a real test,” Mitchell Moss, a professor of urban policy and planning at New York University, said of Hudson Yards malls earlier this year, according to Bloomberg. “The greatest challenge is they have to make it part of New York.”

How malls will exist in the city’s retail environment of the future remains to be seen.

“You come to New York City to be outside and really feel the street and to shop around markets like SoHo, Nolita, Upper Madison Avenue and Fifth Avenue,” Lee & Associates principal Greg Tannor said, adding that the retail at the Plaza Hotel was originally slated for a mall but was plagued by “false starts” and ultimately became a food hall. 

Hudson Yards' location, now open for nearly two months, could experience some growing pains, Tannor predicts.

“It's not like they're offering anything completely different than what stores in SoHo would offer except that it enclosed them at the mall setting," he said. "So is it going to be successful? I mean, does Related build a project that isn’t successful? The answer is usually no. They're extremely brilliant in terms of the way that they've approached projects.”

It still has been the recipient of significant snark, however. New York Magazine called the entire development a “billionaire’s fantasy city” and the New York Times described it as a seven-year-old vision of the future that “already felt outdated on opening day." Restaurant review website The Infatuation likened it to the setting of a “Sci-Fi film where robots rebel against their wealthy human overlords” and implied it was worth visiting only if one has a "dream of eating an extremely expensive dinner in a mall.”

In a statement, a spokesperson for Related said retail at Hudson Yards is “a new shopping paradigm for New York City and initial success is already exceeding expectations.”

The center has a mix of established and new retailers, and has the first Neiman Marcus in the city as the anchor tenant. Related is likely banking that cachet will act as a draw — as will the thousands of workers occupying its handful of office skyscrapers — though department stores are under enormous pressure to compete. 

In January, Saks Fifth Avenue closed its location in Brookfield Place after two years because it wasn’t performing well, showing just how tough it can be for those kinds of stores to generate healthy margins.

“In New York City, you cannot bring a knife to a gunfight,” Saks Fifth Avenue President Marc Metrick told the AP in February in reference to the closure. “You can’t bring a branch store to New York City. The New York City customer wants a flagship type of experience.”

Brookfield Senior Vice President of Retail Leasing Michael Goldban said curating a mall properly is crucial to its ability to thrive.

“You want to make a place that people want to come back to, and that doesn't mean that you need to make a sale every time,” he said. “It used to be that mostly you would go [to a mall] to shop [but] now it's a much broader experience that's being offered. It’s a place to eat, it's a place to be entertained, it's a place where you could see a performance or book reading.”

BFC Partners principal Joseph Ferrara's company is developing soon-to-open Empire Outlets on Staten Island, which counts Nike, Levi’s and Old Navy among its tenants. He said he expects the entire process of going to the shops to be an experience.

The ferry ride from Manhattan, the Statue of Liberty selfie opportunity and curated events is what they will come for, and the shopping is why they will stay.

“I never thought of Empire Outlets as a shopping mall,” Ferrara said in an interview. “We feel very different from your typical outlet racetrack center that would be located on the side of a highway in the middle of a state ... We’re very New York.”