Coresight: Challenges Loom For Mall Operators

Shopping malls face a tough go of it in reopening as coronavirus-related shopping restrictions ease, according to a Coresight Research report, with consumer wariness only one of the challenges they face.

As authorities in many regions of the U.S. started to relax stay-at-home restrictions, several mall property owners began reopening the shopping centers they control in phases. However, the challenges mall owners face are several, the report indicated. For one, the pandemic likely will pull forward several years of retail store closures to this year and next, given that many retailers have been facing heavy losses due to lockdowns affecting non-essential stores. Store closings precipitated by the circumstances will add to severe occupancy- and rental-rate pressure on mall owners, accelerating the pace of mall rationalization.

Many mall operators have been turning over more of their physical footprints to experiential uses as apparel sales migrated online and consumers reprioritized their spending on discretionary services over discretionary goods. The strategy, which may have suited prior circumstances, could now represent a vulnerability, with such shared space potentially restricted under social distancing regulations.

On top of that, Coresight noted, department store closures will leave many malls struggling to find new tenants, as businesses pull back on spending and expansion due to the pandemic. With anchor stores vacant and mall traffic diminished, in-line tenants could move to exercise their co-tenancy rights and demand rent reductions or early lease termination without penalty. If they do, a ripple effect may drive occupancy even lower, ultimately pushing malls entirely out of business.

Many malls experienced weak foot traffic as they initially reopened from COVID-19 restrictions as consumer wariness, social distancing and shoppers limiting discretionary spending had their effect. On the positive side, Coresight maintained, foot traffic has since shown signs of recovery, so despite the challenges they face, malls are showing at least some indications of a comeback.