The renovations at Scottsdale Fashion Square show a mall willing to continue to provide the experiential retail experiences of the future, as malls across the nation close down, or renovate in hopes of attracting non-retail users.(Provided rendering by Scottsdale Fashion Square)
Malls pump more than $8 billion into renovations to entice shoppers
In an effort to create destinations that captivate shoppers beyond mere retail purchases, owners are dramatically transforming malls—to the tune of more than $8 billion in renovations over the last three years. JLL’s new report, A New Mall Rises, explores 90 super regional and regional malls tracked by the firm that are currently undergoing or have gone through a significant renovation during that time period.
“Malls must respond to changing shopper preferences with laser focus and evolve their purpose through redevelopments to be relevant,” said John Lambert, Director of Retail Development for JLL. “Many of the 90 properties we looked at are elevating their role beyond purely shopping and becoming destinations for dining out and entertainment, community activities and even lodging and residential.”
The capital improvement upgrades fell into five main categories:
- Forty-one percent of malls added food and beverage (F&B) options, and of those 55 percent also added entertainment offerings.
- Forty-three percent of malls are adding non-retail uses including multifamily, office, hotels, call centers, schools, distribution centers and/or medical facilities.
- Twenty percent of malls are dedicating space to the community including open green spaces and kid-friendly play areas.
- Ninety-four percent of malls are getting a makeover through common area improvements, rebranding and/or making tenant upgrades.
- Twenty-two percent of malls are actually de-malling the space or demolishing it for the highest and best use in the community.
These top five ways to redevelop a mall have their pros and cons, but they all need to prove one thing in common – a return on investment or at the very least, a cap on the opportunity loss. The overall performance of a property post-renovation is often difficult to evaluate but some indicators include an uptick in sales per square foot, cap rate compression, rental rate hikes or purely densification and diversification of the real estate holdings.
“As a general rule of thumb, mall owners who place an impactful amount of capital into a renovation hope to see an 8-10 percent increase in sales. But, minor renovations that simply attempt to keep properties current and afloat aren’t likely to drive a noticeable change in the bottom line,” added Larry Jensen, Director of Business Development for JLL’s National Retail Property Management practice. “Before an owner begins a renovation, they need to consider the value of the property and the cost of the redevelopment, as well as their anticipated return. But, they also need to consider the alternative. What’s the cost of not renovating as shoppers become bored and move on to other venues?”