Shopping Malls & Centers 2017

Fewer Malls, Fewer Vacancies During 2016

According to Cushman & Wakefield, the US shopping center vacancy rate continued an improving trend during 2016, with the Q1 2016 vacancy rate at 7.9%; Q2 2016, 7.6%; Q3 2016, 7.4%; and Q4 2016, 7.3%. Vacancies were 7.1% during Q2 2017.

New shopping mall construction, as measured in total square footage, declined during 2016 to 25 million SF, a decrease of 9% from the 27.5 million SF built during 2015. Of the 6.6 million SF delivered during Q4 2016, 5.5 million was occupied upon completion.

According to the International Council of Shopping Centers (ICSC), 2016 net operating income increased 4.9% for shopping centers and 1.5% for malls YOY. Base rent increased 6.5% to $19.17/sq. ft. and 1.3% to $27.30/sq. ft., respectively.

Highest and Lowest Shopping Center Vacancy Rates, 2016Cities with Lowest Vacancies Rate Cities with Highest Vacancies Rate

#1: Boston, MA 3.8% #1: Mobile, AL 11.9%#2: Miami, FL 3.9% #2 Reno, NV 11.7%#3: Raleigh/Durham, NC 4.2% #3: Phoenix, AZ 11.2%#4: Little Rock, AR 4.3% #4: Chicago, IL 10.7%#5 (tie): Hawaii 4.5% #5: Milwaukee, WI 10.4%#5 (tie): San Francisco, CA 4.5%

Cushman & Wakefield, March 2017

Struggles and Reinventions

A retail analyst quoted by CNBC predicted that of the roughly 1,100 enclosed shopping malls as of May 2016, 400 will close within the next several years due to an oversupply of mall space and the loss of key anchor tenants, especially department stores.

According to Deutsche Asset Management, mall sales for entertainment, theaters, personal care, sporting goods, personal service and drug/beauty increased during 2016, while home furnishing, toys, jewelry, books, apparel and restaurants decreased.

Although retailers may fear that customers find products in-store, and then purchase online, the reverse is more often true. When asked how often they browse online, and then buy in-store, 15% said all the time, 26% most of the time and 50% sometimes.

Top 10 Malls by Sales, As of September 2016Property Sales/SF Property Sales/SF

#1: Bal Harbour Shops (Miami) $3,185 #6: Pheasant Lane Mall (Boston) $1,595#2: The Grove (Los Angeles) $2,220 #7: Village at Corte Madera (SF) $1,475#3: Mall at Rockingham Park (Boston) $2,170 #8: Century City (Los Angeles) $1,457#4: Forum Shops at Caesars (Las Vegas) $1,615 #9: Ala Moana Center (Honolulu) $1,440#5: Aventura Mall (Miami) $1,595 #10: The Mall at Millenia (Orlando) $1,345

Deutsche Asset Management (Green Street Advisors), November 2016

Adjusting to the New Normal

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A short-term solution to store vacancies is to fill empty spaces with pop-up stores, which adds excitement for mall shoppers. A long-term solution is to create outward-facing stores to increase interest from potential shoppers who are driving by the mall.

Some malls are changing their focus from general shopping. Food-based malls are dining destinations, bolstered with non-food retail. Others are wellness-centered. Some mall owners are razing and converting properties into mixed-use, open-air centers.

More open-air shopping centers are being built, with a mix of retail space and offices, restaurants, residences, parks, grocery stores, entertainment and hotels to create a community center/destination. Empty department stores are transitioning to mixed use.

Top 10 Retail Center Experiences, 2017Shopping Center Attractions Shopping Center Attractions

#1: Mall of America (MN)

Aquarium, rides, comedy club

#6: Waterside, a Conscious Place (TX)

Experiential community center

#2: Brickell City Centre (FL)

Structure that cools shoppers naturally

#7: Pinnacle at Turkey Creek (TN)

Food event at car race for charity

#3: Easton Town Center (OH) Fashion show #8: The Shops at

Willow Bend (TX)Community activities and classes

#4: Woodbury Commons (NY)

Themed sections about New York

#9: Outlets of Little Rock (AR) Food truck festivals

#5: The Grove (CA) Uber drop-off area #10: Avalon (GA) Fashion show for charity

Chain Store Age, July 2017

New Areas, New Owners

Public real estate investment trusts (REITs) own 80% of malls in the US, but only 10% of strip centers. Individuals in their 70s and 80s own many, so they are likely to sell.

Defunct and failing urban malls and shopping centers are being revitalized in downtown areas, near transit stops and in urban residential areas. Increasing rents in urban areas attract higher-income residents, plus shoppers who work, but don’t live, in the city.

Because of increasing urban rents, more people are moving to the suburbs, which will need more shopping. The fastest growing suburbs are Montbello, CO (Denver); Wylie, TX (Dallas); Dublin, CA (Oakland); Daffan, TX (Austin); and Palm River, FL (Tampa).

Top 10 Retail Shopping Center Experiences, 2017Reason Percent Reason Percent

#1: Price/value 92% #6: Promotions/sales/coupons 61%#2: Product quality 79% #7: Design/style/trendiness 36%#3: Variety/selection 71% #8: Experience in the physical stores 29%#4: Location of stores 71% #9: Corporate responsibility and

trustworthiness 15%#5: Customer service 59%

Shopping Center Today (ICSC Research), August 2017 issueStrip Centers Holding Their Own

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During Q2 2017, the national vacancy rate for community and neighborhood centers was 7.8%, a decrease from 8.1% YOY. Strip center vacancies held steady at 6.9%. Average asking rent increased 0.3% during Q1 2017.

The outlook for strip centers is good for the next several years. The biggest risk in this category is increased store bankruptcies. Centers anchored by grocery stores and with service-oriented tenants are more resistant to recessions and ecommerce competition.

A growing trend is luxury strip centers, with a mix of high-traffic-generating stores, such as Apple, Nike and Nordstrom, with farm-to-table and other hip food offerings and owner-operated, non-chain boutiques.

Strip Malls Statistics, Q2 2017Metric Amount % Change

from Q2 2016Average asking lease rate $20.64/SF -3.7%New construction delivered (Q1 and Q2) 11.6 million SF NANew construction in progress 20.0 million SF -36.9%

Cushman & Wakefield, July 2017

Demographic Opportunities

More than half of the US population growth from 2000 to 2010 was among Latino-Americans, and this is projected to continue. One company saved ten struggling malls by changing them to cater to Latino-American families.

Millennials care about corporate responsibility and crave social interaction and experiences over products. Shopping centers can create community events, support local charities and increase salon, restaurant and entertainment tenancy.

The top demographic to prefer shopping in-store is Baby Boomers, at 84%. Shopping centers that offer conveniences, such as valet parking, parking shuttles and easy-to-navigate centers, will score points with them.

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Additional Analysis

An analysis of two shopping malls in Phoenix, AZ, based on The Media Audit’s Spring 2017 survey, reveals some interesting and counterintuitive results about those adults 18+ who shopped there often.

Chandler Fashion Center in Tempe is described as an upscale mall, which would suggest a high-income shopper profile, while Tanger Outlets in West Phoenix, with its many factory outlet stores would suggest shoppers with limited disposable income in search of name brand merchandise at discounted prices. The data suggests, however, that these assumptions are somewhat incorrect.

Selected Metric Comparisons of Adults 18+ Who Shopped at Two Phoenix Shopping Malls Often, Sprint 2017

Metric Chandler Fashion Center Tanger Outlets

Percent Index Percent IndexMen 27.2% 56 43.5% 90Women 72.5% 140 56.5% 109Adults 21–24 2.5% 32 48.4% 636Adults 25–44 47.7% 135 31.3% 89Adults 65+ 26.4% 133 10.1% 125Caucasian Americans 63.0% 99 46.2% 72Latino Americans 22.5% 95 43.5% 183$35K–$75K household income 41.3% 107 10.2% 51$75K–$150K household income 42.8% 159 74.8% 311High school graduate 24.4% 92 53.8% 204College degree/advanced degree 45.4% 148 36.2% 96

Based on The Media Audit’s Spring 2017 survey

It’s not particularly surprising that women account for almost 75% of those who adults 18+ who shop at Chandler Fashion Center, but the much larger percentage of men who shop at Tanger Outlets may suggest they would rather spend their money for bargains than upscale fashion brands.

The comparison of adults 21–24, combined with the ethnicity percentages, seems to match the fact that Millennials/young adults are the largest group of Latino Americans across the US, and certainly in a city, such as Phoenix, with a large Latino American population.

The household income numbers appear to prove a “truism” about high-income individuals/families: they have a high-income ($75K–$150K) not just because they earn it, but because they are smart shoppers, as essentially 75% of those who shop at Tanger Outlets often are in this household income bracket.

Sources: Shopping Centers Today Website, 8/17; Money Website, 8/17; Forbes Website, 8/17; ICSC Website, 8/17; Deutsche Asset Management Website, 8/17; Chain Store Age Website, 8/17, Time Trade Website, 8/17; Green

Media Group Online, Inc.• 103 Sterling Mine Rd.• Sloatsburg, NY 10974 • Tel 866-921-1026 • Fax 845-712-5168

Street Advisors Website, 8/17; Business Insider Website, 8/17; Business of Fashion Website, 8/17; Cushman & Wakefield Website, 8/17; Retail Industry Leaders Association Website, 8/17; The Media Audit Website, 8/17.

Updated: August 2017

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