As the construction dust begins to settle, the efficacy of new shopping centers can be judged. Projects such as the Shops and Restaurants at Hudson Yards, which touts experiential tenants, star chef-driven restaurants, and Manhattan’s first Neiman Marcus, and American Dream’s retail, dining options and entertainment on steroids, nearing completion in the New Jersey Meadowlands, will be put under the microscope and their most successful elements duplicated. But there’s no fail-safe formula for fixing ailing malls and reinvigorating tired centers.
The retail upheaval sparked by the confluence of the 2007 Great Recession, the rise of e-commerce and Millennials’ shifting priorities, resulted in bankruptcies and thousands of store closures, and continues to wreak havoc on the shopping center industry.
Malls anchored by Sears, J.C. Penney and Macy’s have been and continue to be redeveloped. And while success always involves reinvested capital, creativity is emerging as a powerful tool as mall owners and REITs try to innovate and iterate on familiar formats.
Of course, the departure of an anchor isn’t the only reason for reimagining a property. With new ground-up shopping centers few and far between, property owners are choosing to spend to give existing malls new currency, adapting to demographic shifts or to shore up assets in the face of growing competition.
Elements of live, work and play, experiential, technology-connected and lifestyle concepts can overlap, and deciding how food halls, specialty movie theaters, tech-enhanced public spaces and newfangled center courts cohabitate isn’t easy, but in the age of Amazon, vacant retail spaces are crying out for new solutions.
Mark Hunter, managing director leading CBRE’s mall management and leasing business for the Americas, said redevelopments aren’t one-size-fits-all, but rather, “they’re market-driven and also go across different investment grade classes. An A-mall versus B-mall can undergo totally different types of redevelopments.”
Drew Myers, senior consultant at CoStar Group, which recently joined forces with Buxton to identify the most productive shopping centers in the U.S. and the elements that drive their performance, said, “A-malls tend to have three-mile trade areas, and about 60,000 households on average with a median income of $75,000. C-malls, on the other hand, have fewer than 25,000 households in their trade areas and the median income is below $50,000. As a result, there’s a major difference in productivity. A-malls tend to drive sales far in excess of $450 per square foot, while C-malls capture below $350 per square foot, according to CoStar’s proprietary mall model.”
REITs have been introducing alternative real estate to their properties for years, but CoStar’s Myers said the trend has been “picking up steam. We’re tracking an even greater number of these projects in the pipeline. From 2010 to 2015, an average of 7.8 million square feet of purpose-built, mixed-use space hit the market. That number’s risen to 13 million square feet per year over the past three years.”
MainPlace Mall in Santa Ana, Calif., which opened in 1958, has had as many incarnations as owners, including Bullock’s Realty Company, Rodamco and Westfield. Anchors opened, and anchors closed over the years with Bullock’s, I. Magnin, two Robinsons-May units, Macy’s Men’s and Home store, and Nordstrom among the departed.
Centennial is now redeveloping MainPlace Mall, adding a boutique hotel, gourmet grocery, 80,000-square-foot KidZania, multiscreen, state-of-the-art movie theater, and three-level,40,000-square-foot Food Emporium with a craft beer bar, wine bar and tasting rooms for local breweries and distilleries.
When the project is finished, there will be more than 225 retailers, restaurants, entertainment tenants and a makers’ market for locally crafted products.
Mixed-use sites command a premium over comparable sites in the investment market,” said Myers. “We’ve proven that retail, office and apartment tenants are willing to pay an average of about 8 percent to 15 percent more in rent to be in a mixed-use site versus a non-mixed use spot in close proximity.”
Centennial has a new strategy being implemented at several of its properties, including Hawthorn Mall and Fox Valley Mall in Vernon Hills, and Aurora/Naperville, Ill., respectively, where significant redevelopment projects are underway. The concept, called Central Park, turns dated center courts into lively multiuse environments ringed by dining options.
International design firm Stantec, and construction services expert Graycor helped Centennial envision Central Park spaces as outdoor-themed destinations where shoppers can congregate, relax and engage in activities, regardless of the temperature outside.
Central Parks have comfortable seating and quiet places to read a book, and are infused with technology. “Some ideas we’re exploring include projection mapping of soccer balls or butterflies that move so children can ‘chase’ them through the park and a modern, musical version of hopscotch,” Centennial said.
Each park-like setting will have programming such as yoga classes and musical performances geared to local shoppers, and the multilevel designs will include water features, tree-like sculptures and contemporary lounges.
When North American Properties’ partner Mark Toro wandered into Colony Square for the first time, he said he saw “the abysmal excuse for a food court that the mall had.” Owner Tishman Speyer in 2015 offered it for sale, and NAP acquired Colony Square with the idea of creating “a living room for midtown Atlanta,” Toro said.
“We chose to demolish Colony Square and start over,” Toro said of the 50-year-old property, which is considered one of the Southeast’s original mixed-use projects with office towers, luxury condominiums, hotel and retail. NAP is spending $360 million to radically transform Colony Square, which sits at one of the city’s busiest intersections, at 14th and Peachtree Streets.
Colony Square’s 163,000 square feet of retail, dining and entertainment space, and 720,000 square feet of Class A office space will be “Atlanta’s first Rockefeller Center,” Toro said, “a gathering place for a city experiencing unprecedented growth with tower cranes on every corner.”
The 15,000-square-foot Plaza has an indoor/outdoor stage and soft seating. The Grove, an urban pocket park with lots of mature trees will “have live music, talks and events,” Toro said. “A helipad on top of one of our buildings will host jazz concerts and beer tastings — anything and everything to bring the community to the property to commune. This is extremely valuable real estate that we’re offering to the public for free.
“Regardless of what brand you put into a mall, it’s still a mall,” Toro added. “We’re seeking to create a community, we’re not seeking to sell stuff. Our currency is human energy.”
While that may sound disingenuous, Toro said NAP inverted the old enclosed mall into new two-story retail shells designed to have a sense of transparency and extending outward to interact with pedestrians.
“The specialty retailers are in still in play, however, they’re going to have to contribute to the experience,” he said. “We’re well aware of the digital native brand phenomenon, where many are gravitating to brick-and-mortar. Other than Warby Parker and Bonobos, we’ve yet to see many of them proven. Many of them are a little nascent.”
“We knocked off The Grove and Santana Row when we built Avalon,” NAP’s Toro said, referring to the Georgia mixed-use project and two classic examples of developments infused with placemaking. At Caruso’s The Grove in Los Angeles, charming features include an iconic trolley that connects the shopping center to the Original Farmers Market, while Federal Realty used antique doors, metal window grates, and even the facade of a French chapel to decorate the Santana Row, a mixed-use project in San Jose, Calif.
Riverton a 418-acre redevelopment on the Raritan River in New Jersey will be a $2.5 billion community with residential, retail, entertainment, marina, office and hotel in a curated street level experience and with a strong sense of place, Toro said, adding that NAP is investing placemaking principles of design and architecture such as the space between the buildings and street-level, human-scale gathering places where social encounters happen organically. “It’s creating a fundamentally different shopping experience than e-commerce,” he said.
“A center’s ability to be intertwined with a local community through event planning, community green space, and a variety of product offerings, among other things, will become more important to the success of that center, particularly bigger properties in suburban locales,” Myers said.
There’s been intense debate about what qualifies as “experiential,” the great shopping center buzzword. To some extent, the experience is in the eye of the shopper. Some experts believe a robust food offering or exceptional service fit the bill, while others point to tenants such as the design-oriented attraction Snark Park at the Shops and Restaurants at Hudson Yards. Meanwhile, other malls have hitched their experiential wagons to music festivals and other events such as sports tournaments.
Brookfield Properties’ $330 million redevelopment of Washington, D.C.’s Ballston Common Mall into Ballston Quarter is filled with examples of entertainment experiences such as Cookology’s culinary school, 5 Wits’ interactive adventures, Muse Paintbar painting classes, and Punch Bowl Social’s 25,000-square-foot bowing alley, restaurant and bar.
Trademark Property’s Waterside in Fort Worth, Tex. branded itself as a “conscious place,” with a higher calling than simply commerce. Leasing and design solicited input from the community, furniture and art was created by local artisans and artists, and a 6,600-gallon cistern collects rainwater, which is redeployed to the property’s green space. With its community pavilion, Trademark calls Waterside “an experience center…that seeks to host, inspire, educate and connect community stakeholders.”
“Experiential tenants make up the most significant source of demand growth and offer alternative reasons for shoppers to visit a center,” Myers said. “Fitness centers, in particular, may bring customers to the mall multiple times every week. Also, these types of tenants tend to be more e-commerce proof.”
“Companies invest time and money to add peripheral uses and negotiate cheaper rents with experiential tenants such as Dave & Buster’s,” Toro said. “A report by Thasos found experiential tenants aren’t driving traffic to malls as owners expected.”
Technology incubators such as Bespoke, a coworking and event demo space geared to the retail tech community at Westfield San Francisco Centre, are proliferating. PREIT-owned Cherry Hill Mall near Philadelphia opened an 11,000-square-foot location for 1776, an incubator for innovation. Joseph Coradino, PREIT’s chief executive officer said the company is replacing traditional anchors with concepts such as 1776 that are attracting Millennials.
Some aging shopping centers are also being recast as tech hubs. RD Management’s University Mall in Tampa, which is being redeveloped and renamed Uptown, will house The University of South Florida’s planned Institute of Applied Engineering.
“We’re going to build an innovation village,” said Mark Sharpe, executive director of Tampa Innovation Partnership. The Seventies-era mall, which was anchored by department stores, has been partly demolished. About 100-plus existing retailers will remain, but the major R&D facility-anchored Uptown is seeking rezoning as an Innovation Corridor.
Technology embedded into shopping environments can move the engagement needle said Kimco Realty Corp., which found shoppers who logged into its app spent twice as much time at its malls than those who didn’t. Kimco added WiFi at its Westlake Shopping Center in Daly City, Calif., and computer-vision sensor technology that counts the number of cars and pedestrians passing through the location to better understand flow at the center. It plans to add geo-fencing technology so retailers can message offers to shoppers’ smartphones. Now, retailers are linking to the developer’s mobile web portal.
CBRE’s Hunter said shopping centers in populous areas are good candidates for densification. University Town Center in San Diego, where owner Unibail-Rodamco-Westfield is building a major residential tower on the property, is “a very dense suburban market,” he said. “The mall is highly successful and has an office component.”
Seritage Growth Properties, which owns the sites of a shuttered Sears store and auto center at UTC, is building a new 225,000-square-foot collection of retail, dining, entertainment and fitness concepts, including Equinox. Seritage was formed to unlock the underlying real estate value of the retail portfolio it acquired in 2015 from Sears Holdings.
“With B and C malls, it’s all over the board, and densification becomes a bit more challenging,” Hunter said. While new, ground-up, mixed-use projects have built residential components above ground-floor retail, Hunter said multifamily units in redevelopment projects are rising on the parking lots of shuttered anchor tenants.
“You’ll start to see residences that aren’t built as a primary part of the mall,” he said. “They’ll be more as an adjunct in the parking lot. There will be lot of redeploying of parking lots into residential, offices and hotels.
“It’s tough to redeploy an entire anchor box on two levels,” Hunter added. “You’re going to see more vacant department stores torn down because it’s more economical.”
A well thought out game plan is the key, however. “Think about what malls are doing,” Toro said. “They’re taking a dead Sears box and dropping an apartment building in its place. It’s lobbing off a limb from one part of the body and sewing it onto another. A traditional mall with a hotel in the parking lot or coworking concept in a former Sears store isn’t the answer. Pieced together like Frankenstein’s monster, without love or care for the human experience, these mall redevelopments will be rejected by consumers.”
Robust food and beverage programs, green space and cultural connections are part of a tenant mix that can minimize e-commerce exposure, drive foot traffic and create a modern shopping environment. “The share of food and beverage tenants in malls has risen to 8.2 percent from 5.3 percent in 2008, and REITS and mall owners now lease as much space to sit-down restaurants and bars as they do fast food chains,” CoStar’s Myers said.
While dining is a key element of lifestyle centers, the focus is now on the right mix of eclectic tenants, said Francis X. Scire Jr., the senior vice president, head of leasing, marketing and brand management of O’Connor Capital Partners.
Scire has become something of a lifestyle expert, having repositioned Palm Beach’s Esplanade into the Royal Poinciana Plaza with Vespa, Sant Ambroeus, Hermès, Kirma Zabête, Saint Laurent, Squeeze Pilates and Assouline on the grounds. The property also has a dog groomer, nail and hair salon, and medical and cosmetic dental services.
“Carmel Plaza, in Carmel, Calif., is similar to what I did at Royal Poinciana,” Scire said. “It’s in a very established resort town. I took the same approach with a collection of very varied retailers including Bottega Veneta, Tiffany & Co., Anthropologie and Cole Haan. We signed Roller Rabbit, and high-performing locals for an eclectic edge. There’s also a yoga studio and Pure Barre boutique. Sur La Table is opening a cooking school kitchen, so it has that whole experiential component. It’s going back to the idea of the lifestyle center where people feel so comfortable about the place, it makes it more evocative.
“It’s a challenging time right now and you’ve got to be focused on knowing the property really well, including knowing the customer,” Scire said. “I did geo-fencing and my focus groups, which I do at all my projects. We were able to implement all that we heard a year ago. Since construction ended, foot traffic is up by double digits, and people are really embracing and utilizing the outdoor space.