The trend: Despite the recovery of brick-and-mortar retail, malls—especially lower-tier ones—are struggling to stay relevant. While high-end developers like Simon Property Group command premium prices for square footage, class B, C, and D mall operators find it difficult to attract tenants and shoppers.
The haves: Simon continues to thrive. The developer raised its full-year guidance thanks to higher occupancy rates and rent increases, per its Q3 earnings report. The company has not seen any signs of pullback in store openings or renewals as retailers continue to invest in brick-and-mortar retail.
- Q3 net operating income for its domestic properties rose 2.3% year-over-year (YoY).
- Occupancy rates at the end of September stood at 94.5%, growing 1.7% YoY.
- Base minimum rents per square foot also grew 1.7%, to $54.80.
But Simon’s acquisition of a 50% stake in mixed-use developer Jamestown suggests the company is looking for ways to diversify its portfolio and reduce its reliance on enclosed malls.
The have-nots: Mall traffic remains well below where it was pre-pandemic. In particular, outlet malls’ recovery has been much slower than indoor and open-air malls—a sign that even the prospect of scoring a deal is no longer enough to attract visitors.
- September traffic to indoor malls was 0.9% below where it was during the same month in 2019, according to Placer.ai. Traffic to outlet malls ticked down by 4.5%.
- The retail availability rate at malls has risen by 90 basis points over the past five years, largely because of an exodus from Class B and C properties, per CBRE.
- With department stores like Macy’s and Nordstrom looking beyond malls for growth, lower-tier operators will find it even more difficult to attract tenants without a big-name anchor.