Enclosed malls have much to do with higher vacancy rates: the rate within this retail venue runs about a point higher than the regional rate. Much has been written about the decline in the mall industry and we’ve all seen the projections. An April report from Cowen and Co. predicted that as many as 20% of stores at some mass and middle-market mall retailers will close in the next five years; a Credit Suisse report from May forecast that 25% of all U.S. malls could shutter by 2022.
Within the larger mall category, Class A malls such as Natick Mall, South Shore Mall, Burlington Mall, and North Shore Mall continue to perform at near full occupancy, with vacancy rates of 4.5% or lower. The problem malls tend to be those with vacant department stores such as Silver City Galleria, Swansea Mall, and Westgate Mall, in which overall vacancy exceeds 20%. As department store anchors continue to close and malls experience a corresponding decline in foot traffic, it should be expected that mall shop chains will continue to close underperforming units. Consequently, it has become essential for mall landlords to find alternative uses to fill space and bring back shoppers, even at the expense of below market rents.
Some of the merchandise categories helping the cause by occupying space in enclosed malls include restaurants, which have generally been a part of the mall tenant mix, and health clubs and medical uses, which have generally not. It’s a measure of the current atmosphere that less traditional tenants are now being considered - and even courted – by mall owners.
The tenant category that is arguably playing the largest role in the re-thinking of mall tenancy is the category we broadly refer to as Entertainment. Well-established entertainment operator Dave & Buster’s is a slam dunk to replace anchor space if your leasing representative is lucky enough to land one. Movie theaters have been selectively added to malls this year (according to our Mall database, which tracks activity in over 700 U.S. malls). AMC Theatres has been active, opening several mall locations, and may be the best choice among theater operators if the market offers a cinema opportunity.
Some of the more active concepts within the entertainment category include such names as All In Adventures, an escape room concept that currently operates more than 30 locations nationwide and has rapidly expanded its footprint through enclosed mall availability in just the past few months.
Another expanding concept is Tilt, which offers both the Tilt Arcade and the larger Tilt Studio formats. Tilt Studio is multi-purpose game facility which, in addition to the video arcade, offers indoor golf, bumper cars, laser tag and other games. Together the company operates more than 30 locations across the US, including one at Solomon Pond Mall in Marlborough, MA.
Wild Dimensions is a growing chain operating in the world of virtual reality. Wild Dimensions allows mall shoppers the opportunity to experience short animated movies while seated in what is billed as a “9D Virtual Reality Chair”. Other expanding VR concepts being added to enclosed malls today include InfiniteVR, VRX Networks, and VR Junkies.
Glow Golf has been around for some time but this chain is still on the move and expanding. This concept only operates indoors under black lights and has found a natural home in enclosed malls. Size typically is not an issue for this versatile chain which now operates within floor plans of 4,000 to 60,000 square feet.
As noted earlier, the traditional mall is among the most challenged of retail real estate categories. Those challenges will certainly continue, and there will continue to be casualties in the mall category. But if mall landlords and their leasing teams continue to be flexible, innovative, and creative in their leasing strategies - envisioning an indoor golf course or virtual reality environment where there was once a department store - it may be that some troubled malls can find revitialization through entertainment.
Bob Sheehan, VP of Research
BSheehan@KeyPoint Partners.com
