June 16, 2017
Shopping-center landlords are rethinking the traditional mall model—and shops aren’t necessarily part of the equation.
As retailers close bricks-and-mortar stores at an accelerating pace, shopping-center landlords are facing a vexing question: What to do with all this empty space?
Their solutions are varied but all have a common element: reducing, or even eliminating, retail stores from the equation.
Some landlords plug empty spaces with churches, for-profit schools and random enterprises while they figure out a long-term plan. Others see a future in mixed-use real estate, converting malls into streetscapes with restaurants, offices and housing. And some are razing properties altogether, and turning them into entertainment or industrial parks.
When Starwood Capital Group LLC bought Fairlane Town Center in 2014, the investment firm had a lot of work to do. The Dearborn, Mich., mall was only 72% leased, and among the vacant space was a sprawling former anchor store.
A chance call to Ford Motor Co. turned out to be a game changer. In April, Ford moved its entire engineering and purchasing staff into space once inhabited by department-store chain Lord & Taylor. Ford is now the mall’s largest tenant, with 240,000 square feet of space.
According to Credit Suisse, retailers have announced 2,880 store closings from January to April 6 of this year, more than twice as many as in the same period a year earlier, For the full year, the investment bank anticipates more than 8,600 stores to close. Analysts predict that 400 or so of the roughly 1,100 malls in the U.S. will close in the coming years.