The Sinreich Group on the Future of Regional Malls
On January 31st, I joined retail real estate industry professionals at an International Council of Shopping Centers (ICSC) event to hear what Sandeep Mathrani, the CEO of General Growth Properties (GGP), one of the largest owners and operators of shopping centers in the United States, had to say about the future of regional malls. At this event, Sandeep answered a wide range of questions on trends affecting regional malls from re-tenanting to online sales. Sandeep’s forecast is sunny: he believes the future for regional malls is bright over the next 20 years.
Here’s my takeaway on two important issues facing retail real estate owners:
- Online Sales — Many have predicted the demise of traditional brick and mortar stores as online retail purchases through the likes of both Amazon and traditional retailers continue to increase at what seem to be exponential rates. However only around 8.3% of retail sales are made online and interestingly, many of these sales have replaced sales that would previously have been made from catalogs vs stores. According to Sandeep, those retailers that have multiple ways of reaching the consumer, including an online or digital presence as well as traditional brick and mortar stores will be the most profitable. Thus he predicted that traditional brick and mortar stores will thrive for a long time to come.
- Loss of Anchors — Sandeep views this as an opportunity to improve the bottom line and cited GGP’s recent experience with JCPenny as a great example. JCPenny recently closed 11 anchor stores in GGP malls. Most have been re-tenanted with either a more upscale department store or several big-box users or torn down and replaced with an open-air lifestyle center add-on. Given the economics of older department store leases, where the anchors pay very low rents, the newer users have enabled GGP to collect higher rents and bring a fresh new look to those properties.