The changes in the real estate world due to developments in technology and the COVID-19 pandemic are enormous. The retail shopping center of today would be unrecognizable a decade ago. But we live in a world of change, and so we must adapt. Landlords are inventing creative ways to rebrand, repurpose and reinvigorate shopping centers and strip malls in this new world of retail.
The typical shopping center once consisted of several anchor tenants — national department stores, clothing chains, and supercenters — supported by smaller retail stores. You would head to the mall to shop at a large establishment and end up maybe buying a few extras.
But with the rise of online shopping, those familiar anchor tenants struggled to compete. Add the restrictions of COVID lockdowns, which decimated an already dwindling number of shoppers, and you have a crisis looming. As a result, anchor tenants are scrambling for ways to work with landlords to modify, restructure or often terminate their leases or to sell or dispose of their out lots. Landlords, needing to keep their centers operating and obligated to generate rental income to make payments to their own lenders, are looking for solutions.
Landlords have been adding a new mix to their tenant base, namely, giant tech companies, who can take a major portion of the center for their operations, bringing a significant employee workforce. Landlords are counting on these employees to become primary users of the malls and are striving to add enticing tenants: restaurants and entertainment venues that appeal to young, tech-savvy workers, as well as non-traditional mall enhancements such as bicycle storage facilities, health and wellness centers, and tech lounges. In short, the mall user has become built-in as a dedicated employee physically working in the space.
Landlords are also upping their game in general, and shopping may no longer be the priority. We’ve seen this for a while: the addition of upscale restaurants, movie theaters, live theater spaces, and other entertainment venues such as places to have children’s parties or to hang out with friends. The shopping component is just one aspect of the concept, and it may not be the most revenue-generating.
But the world remains far from certain, and so landlords and retail tenants are being cautious. Rather than building new tenant space, the parties are looking to retrofit existing space. If a retail owner can start operating without a lot of down time and expense in build-out, that’s profit for the retailer and it keeps the mall up and running, because as we all know, boarded-up spaces are disadvantageous.
The good news is that shopping centers are far from a thing of the past. People will always want the experience that only in-person shopping can bring. And there’s the social aspect as well — meeting friends, eating out, going to a movie. If landlords hear the call and continue to provide upscale restaurants, theaters and entertainment venues and add tech giants to their retail mix, shopping centers will thrive.
—John A. Goldstein at Greensfelder, Hemker & Gale, P.C. focuses on counseling clients on commercial real estate and finance transactions. His national practice handles diverse real estate transactions, including secured lending, land acquisitions and dispositions, development work, contract drafting and negotiation and commercial leasing.