Malls rely on food in major redevelopment
More than $8 billion has been spent during the past three years to transform America's mall and much of that investment involves food and entertainment.
In a well-established trend to keep America's mall relevant to shoppers, huge sums are being spent to transform retail spaces to include food and entertainment options that generate customer traffic and create the type of dynamic hive of activity that has become lacking at some malls. A new report from JLL, a leading professional services firm focused on retail real estate, looked at 90 super regional and regional malls tracked by the firm that are currently undergoing or have gone through a significant renovation during the past three years.
“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.”
More specifically, JLL found that 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,” said 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?”