Shopping malls have gone from the most written-off asset in US commercial real estate to the best-performing one.
Mall values rose 13% over the past year, according to real estate analytics firm Green Street, cited in The Wall Street Journal. That outpaced all 10 commercial property sectors tracked by the firm and was more than double the increase in overall commercial real estate prices.
Weak returns from office and apartment assets are pushing some investors toward retail, where occupancy and rent growth have held up better due to limited new supply.
But the Journal reports resilient consumer spending and few retailer bankruptcies have also played a part, with the strongest mall owners renovating properties and replacing vacant department stores with luxury retailers, popular restaurant chains and entertainment venues.
Green Street data shows roughly 200 US malls have closed since 2008, leaving about 900 still operating; five years ago, pandemic closures and the retreat of department stores had put much of the sector on the brink.
“In terms of how we think about the malls today fundamentally, this is probably the best it’s felt post-Covid,” said Ronald Kamdem, head of US real estate investment trust and commercial real estate research at Morgan Stanley.
Shares in Simon Property Group, the largest US mall owner, passed their previous 2016 record high in July and have outperformed the S&P 500 over the past 12 months.
“We see the type of rent growth that we haven’t seen since the beginning of the 2010s,” said URW chief executive Vincent Rouget, who said the company’s 14 remaining American malls are now outgrowing the rest of its global portfolio on tenant sales and income growth.
Despite the uptick, mall values remain well below the peaks reached a decade ago, according to Green Street, and The New York Post also reported that the country’s five busiest malls by foot traffic – Mall of America and American Dream, each drawing about 40 million visitors a year, along with Houston’s the Galleria, Pennsylvania’s King of Prussia and South Florida’s Aventura Mall – are increasingly functioning as entertainment destinations in their own right rather than pure retail centres.
This story draws on “Malls Were Left for Dead. Now They Are the Top Performer in Commercial Real Estate.“, The Wall Street Journal, and “Zombie malls are having the last laugh“, New York Post.