Owners of struggling shopping malls should prepare to demonstrate how changed consumer preferences and practices reduce taxable property value.
A great deal has changed in the real estate world since the COVID-19 pandemic. Of the many types of real estate holdings affected, shopping malls anchored by one or more large department stores have suffered more than most. The buying public is simply less inclined to frequent such properties than in the past, draining much of the functionality, revenue potential and market value from those assets. As a result, the taxable values of those same properties have also diminished, reducing the tax revenue they generate through property taxes.
The decline in mall market values stems primarily from various forms of obsolescence. Mall owners who can explain to assessors how these forces affect their property’s taxable value will gain an edge in arguing for a reduced tax assessment.
Facets of Obsolescence
Economic obsolescence was already creating challenges for enclosed shopping malls before the pandemic accelerated its effects. This major form of obsolescence occurs when external economic factors impair the continued usefulness of a property or type of property.
Within that orbit are changes in consumer perceptions. E-commerce and new ways of buying from brick-and-mortar stores have shifted many shoppers’ views concerning the utility and attractiveness of enclosed shopping centers. They may find shopping at big box stores inconvenient or impractical, or may avoid malls for basic economic reasons, none of which relate to the buildings themselves.
When people are no longer attracted to the mall as a destination, the economic effect on the property is a lower usability. Clearly, economic factors outside the property’s boundaries play a role in diminishing the value of such properties. The popularity of online shopping has undercut the number of mall customers from an economic standpoint. Likewise playing a part in that effect can be the costs of shopping, including fuel or transit fares traveling to the mall. Consumers may also associate the time required to navigate internal corridors and make repeated trips for merchandise returns or exchanges as an economic cost.
Another form of obsolescence is functional. This type of obsolescence occurs when the property itself detracts from its usefulness. The layout of the stores, including big boxes, can affect the property’s viability for producing revenue. Internally oriented stores, which are typical of enclosed malls, can discourage patrons who prefer direct external access to each store.
A similar preference for quick access to merchandise and short shopping visits, rather than extended browsing in large showrooms, means fewer consumers are amenable to the big-box or department store format. The increasingly dysfunctional mall format discourages patrons from frequenting the property.
There is some overlap between economic issues and a property’s functionality. If people are no longer content with shopping indoors, then shopping centers designed to be enclosed lose functionality.
When shoppers find it inconvenient to drive to a mall, park at some distance from the store they visit, and carry their purchases through the mall and outside lot before exiting the property, those perceptions undermine the mall’s functional usefulness.
All these issues affect the property’s ability to attract retail tenants and can restrict the amount of rent those retailers are willing to pay for leased space. The constraint on attainable rents, lost traffic generation from vacant anchor spaces, and elevated or persistent vacancy in the landlord’s inline spaces all conspire to erode the property’s fair market value and, ultimately, taxable value.
The large number of malls and big box stores that have shuttered nationwide underscores the existential threat these changes pose to existing malls. A recent example was the closing of a mall because the property’s owner could not pay ongoing utility charges. Clearly, empty malls, or even malls with elevated vacancy, lose market value and taxable value.
Efforts to Adapt
Some mall owners have sought to remedy their properties’ ills through redevelopment, typically by altering the overall structure to create multiple uses. Residential condominiums and apartments can provide a significant source of customers for on-site retailers, entertainment venues and service businesses. Additionally, offices can add on-site workers and new sources of business to generate foot traffic. Such additions can also create a more attractive façade, with externally oriented buildings, outdoor space and an integrated shopping experience for visitors. All of these changes would ultimately enhance property values.
Individual success stories of defunct malls converted to revitalized mixed-use developments may inspire similar efforts. Unfortunately, they may also create unrealistic expectations about the utility, marketability and taxable value of the many malls still attempting to counter obsolescence on multiple fronts.
As other real estate sectors and even some retail models have regained profitability and value since the pandemic, taxing authorities have been inclined to recover lost tax revenue by increasing assessed values for many commercial property types, including shopping centers and enclosed malls.
As a result, assessors are increasing mall valuations to levels unsupported by property fundamentals or the local market, while ignoring the economic and functional obsolescence that adverse changes have brought to these properties and their taxable values.
For many mall owners, achieving fair treatment in property taxation will require educating their assessors on the ways economic and functional obsolescence have strangled their property’s revenue streams and slashed taxable value. In contesting unfair assessments, be prepared to explain these trends and to demonstrate the full weight of obsolescence on the property’s value.
Brian Morrissey is an attorney and partner at the Atlanta law firm Georgia Property Tax Counsel, the Georgia member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at bmorrissey@rbspg.com.
This article was originally published in the October 2025 issue of Shopping Center Business magazine.