What: Mall owners are repurposing their properties with alternative uses and attracting tenants and experiences not typically found in shopping centers.

Why it is important: Department stores are increasingly leaving traditional mall formats in the US, leaving mall owners to get creative with their vacant space.

Diversification and densification are driving Maerich’s strategy, a California-based mall owner that expects 30 to 40 percent of its portfolio to be non-traditional use. Currently, that number is at 15 to 20%, as they repurpose square footage that was previously occupied by department stores and other retailers.

The California-based mall owner has transformed these vacant spaces and underutilized parking lots into residences, hotels, experiential concepts, fitness centers, and added more food and beverage options, as well as a variety of DTC consumer brands.

Malls and shopping centers need to continue to adapt as consumers’ discretionary spending goes more towards experiences and less on material goods, mall traffic decreases, and Amazon continues to be a top competitor.

To see success, the mall owner has been remerchandising and redeveloping its real estate with a differentiated, alternative mix of tenants in addition to adding square footage to existing assets that are productive.

Top malls today look much different than 10 to 15 years ago with the exit of department stores and other traditional retailers. Maerich is increasingly adding experiential-type tenants as they drive foot traffic and bring energy to the mall, which results in improving sales and better rent. Leasing volumes come from a mix of both traditional retail and nontraditional concepts like fitness centers.

The leasing environment is the strongest the company has ever had, with 93.6% of its malls leased a the end of the fourth quarter. The company is expected to see USD 56 million growth in annual rent income from store openings this year through the end of 2025.

In 2022, total revenues came to USD 859.1 million. Additionally, traffic is tracking 95% of pre-COVID levels and retail sales are closer to 115% of pre-pandemic levels.

Making the most of a mall