Retail Center Occupancy Is High, with Sales Rising in Upscale Malls/Online Sales Hurt Stores

The largest enclosed shopping malls are sometimes referred to as “super-regional centers” (malls which include at least three department stores and at least 800,000 square feet of retail space.) Such malls often contain more than 1.2 million square feet.

Other types of shopping center properties, such as power centers and lifestyle centers, have been developing rapidly in recent years, in many cases robbing traffic from traditional malls. A “power center” is typically an open-air complex of category-dominant anchors such as category-killers, home improvement stores, discount stores and warehouse clubs. A “lifestyle center” is an open-air, highly landscaped configuration of approximately 50+ stores. Generally located near upscale neighborhoods, lifestyle centers offer leasable retail areas of 150,000 to 500,000 square feet, with at least 50,000 square feet of space typically dedicated to upscale national specialty stores such as Williams-Sonoma.

There are also hybrid centers, and value-oriented centers. Hybrids have some of the features of enclosed malls and lifestyle centers. That is, they have both open-air sections and enclosed sections. Value-oriented centers are built on formats that emphasize discounted prices. These include outlet malls. Many new value-oriented centers feature significant entertainment segments.

Upscale malls and high-end shopping centers were enjoying strong foot traffic in 2023-24. However, malls overall are having difficulty competing with online sites and with discount, big box retailers such as Walmart. Real estate data firm Green Street reported foot traffic in U.S. malls down by an average of 4% in 2023 over 2022 and 12% lower than 2019 traffic. Low end malls have suffered the most, seeing department store closings since 2017 (starting well before the Coronavirus pandemic shut down public spaces). On the positive side, higher end malls such as those owned by Simon Property Group and Macerich reported excellent leasing numbers, attracting upscale retailers including Hermes, Warby Parker and lululemon. Many of the expanding retail store chains, such as Warby Parker, started out as online-only retailers and later learned to build very successful online-physical store hybrid strategies.

Online sales are helping retailers pinpoint where to open new brick and mortar locations. For example, Abercrombie & Fitch began opening new stores at a rate of 10 per year starting in 2023 based on online shoppers’ locations. Also, many major retailers have found great operating efficiencies by utilizing their large networks of physical stores not only to serve in-store shoppers, but also to use as local warehouses for rapid delivery of goods purchased online.

The most successful operators of malls and larger shopping centers know that the key to maintaining foot traffic is combining entertainment venues and multiple restaurants with retail stores. Meanwhile, marginal, poorly operated, or poorly located retail properties suffer. Many end up repossessed by lenders, or even knocked down so that other types of buildings can be built to maximize land value.

Construction of new retail and mall space plummeted in 2020-2024. Also, vast amounts of outdated, empty retail space has been demolished, over 150 million square feet, according to JLL Research, over the 2018-2023 period. Accordingly, retail mall vacancy rates were extremely low in mid-2024, at only 4.1%.

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