Missing the Forest for the B’s?
I’ve read a few thought-provoking articles recently about the state of the retail real estate marketplace that make the observation that A malls are generally doing better while B malls are continuing to tread water—or even beginning to fade away. Once again, I have to disagree on the B malls.
I think that kind of generalization is not telling the whole story. What seems to be missing from most of the articles I’ve read is the fact that there is substantial value still present in most B malls, (unlike the A malls which are already at their value capacity)—if you know what to look for, and are willing to put some effort into unlocking the value that exists within them.
It is important to remember that B malls are considered B malls because of performance, not potential. I think it’s a reflex for many analysts/articles to look at B malls as what they are, rather than what they can be—which is somewhat indicative of our industry. I think there may even be a misperception held by some that B malls are often in undesirable locations or have inherent and insurmountable structural/geographic limitations. Actually, I think that nothing could be further from the truth. The vast majority of malls—B malls included—are in a relatively prime location within their marketplaces. They tend to be in what is essentially the center of what I like to call the “retail magnet.” Generally speaking, in most cases, they became B malls as a result of increased competition, poor tenant mix, mismanagement or a combination of these factors.
So then how can you change that dynamic and unlock that value? I think it boils down to perception: B malls have to be thought about a bit differently than they used to be. The biggest and most important step is that owners and operators need to be a little more creative about how they tenant these malls. Typically, B malls are stuck with too much small shop space. They need to be thinking about how to move nearby “periphery” retailers into the mall—those that are in the power centers on the edge of the “magnet.” Let’s be honest, the retail landscape is still stretched pretty thin in many markets, making this consolidation strategy not just feasible, but also a mutually beneficial setup for retailers and mall owners. Prioritizing big boxes and anchors, and aggressively pursuing the kind of difference-making tenants that can help generate excitement and traffic can completely change the dynamic of a B mall.
Fundamentally, leasing strategies need to be focused on leveraging that quality real estate and strengthening the retail magnet. There is an abundance of distressed retail out there that really needs to be combined into one place—and what better place to do it than the mall!
B mall owners also need to think about adding a supermarket component or a wholesale club to bring in the daily traffic—diversifying their tenant roster in a way that will inspire more trips to the center from different groups of consumers. Adding other mixed-use elements and creating more of a destination feel can be invaluable, too, and I’m also a big proponent of adding civic uses such a library, post office, or DMV; anything that brings in different kinds of shoppers and different demographics at different times.
There is a reason why some savvy national developers like Rouse Properties have chosen to focus exclusively on B malls: Because they know there is inherent value that is not being recognized, utilized or maximized. I think that the owners, operators, developers and investors who can do that, and who can re-activate these commercial hubs, will potentially find themselves with properties poised for growth.
What do you think? Are there other ways B malls can stay relevant and compete? Please make a public comment below or feel free to e-mail me privately at firstname.lastname@example.org.
Click here for past columns by Jeff Green.