Malls spend $8 billion on property makeovers
Malls have spent a reported $8 billion on renovations to distance themselves from traditional retail outlets. Trends include renaming properties, and adding entertainment and residential features for secondary use.
According to a recent study by Jones Lang LaSalle (JLL), $8 billion dollars have been spent to revitalize 90 mall properties in the country. Property owners are adding apartments, fine dining, event spaces, hotels, parks and even auto dealerships to old malls under the belief that if developers create desirable spaces for secondary use, people will come back and shop there again.
Most of the renovation budgets are being spent on developing spaces dedicated to secondary uses – including multifamily use – such as apartments, hotels and parks. A quarter of budgets added office space.
JLL found 20 percent of mall owners have removed the word "mall" from their properties in the past three years in an effort to rebrand for a modern consumer. Preferred new names include "town center," "shoppes" and "village," indicative of the desire to create destinations outside of traditional shopping malls.
Pouring money into old mall properties is not necessarily a proven technique of boosting profits. Rather, developers seem to be attempting to operate preemptively, with the belief that investing in the renovation of retail properties now may well prevent their future demise in an increasingly challenging retail environment.
Larry Jensen, director of business development for JLL's National Retail Property Management practice framed the trend of investing in old malls by pointing out the cost of losing shoppers to other venues. Jensen said, "mall owners who place an impactful amount of capital into a renovation hope to see an 8-10 percent increase in sales."
Examples of impactful investments include LA's Westfield Century City which underwent a $1 billion renovation that brings foodie destinations, an Equinox, elevated Uber brand experiences, and an event space to the property. Simon Property Group spent $300 million on The Galleria Houston where it used the footprint of a former Saks Fifth Avenue store and created 30 smaller boutiques.
Time Equities is an investor participating in renovating mall properties. Spokesperson Ami Ziff explained how uncertain the future is for malls, saying the return is not always linear. Ziff said the challenge is to justify the cost of the upgrades. He echoed Jensen's sentiment that while it is not a proven growth strategy, the hope is that creating more ambient spaces will save the malls.
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