Are malls better off without department stores?
According to research from JLL Retail, many malls are finding few challenges replacing department stores as anchors. What’s more, the new tenants generally pay much higher rent.
The shopping center owner noted that, historically, rents paid by department stores have been “extremely low,” usually less than $10 per square foot. In the case of Seritage Growth Properties, Sears was leasing 266 properties, paying on average about $4.40-per-square-foot. Repurposing many of those Sears and Kmart locations, Seritage has attracted new tenants paying on average $18.55-per-square-foot.
Overall, JLL Retail’s report explored what happened to recently vacated department stores and found that many were repurposed to some unorthodox tenants:
- Restaurants: Pointing to a Nobu and Fig & Olive that’s replacing a portion of a Saks Fifth Avenue at the Galleria in Houston, JLL Retail said restaurants are “becoming destinations, and anchors in their own right.” An Outback Steakhouse and Yard House leased part of a former Sears at King of Prussia Mall in suburban Philadelphia.
- Supermarkets:A Wegmans will soon be taking over a J.C. Penney location at Natick Mall in Massachusetts; a Whole Foods recently opened in the first level of a former Sears at a mall in Clearwater, FL; and a Fresh Market opened in a portion of a Sears in Virginia Beach, VA.
- Entertainment: A growing number of theaters are moving into former department store spaces including two that recently opened in a former Saks Fifth Avenue and Nordstrom. Concepts like Main Event Entertainment and Dave and Busters, which offer bowling, laser tag, arcade games and karaoke, have opened in former Sears locations. At the Florida Mall in Orlando, a Crayola Experience opened in a portion of a former Nordstrom.
Beyond dining and entertainment, categories including fast-fashion, cosmetics, sporting goods, and home furnishings are taking space in former anchor locations. In some cases, off-price chains (Nordstrom Rack, Saks Off Fifth, Ross Dress for Less, etc.) have replaced Sears.
JLL Retail noted that re-leasing or redevelopment of an empty anchor is often dictated by the demographics and lifestyles of the surrounding community. Privately-owned shopping centers may be reluctant to invest the sufficient capital for redevelopment or improvements required to attract new tenants.
- Anchors Away? What Department Store Closures Mean for Shopping Centers (Press release) – JLL Retail
- Empty to Alive: The Next Use for Department Store Space (study) – JLL Retail
DISCUSSION QUESTIONS: Do you see ample options for malls looking to replace department store anchors at all levels of mall properties (Class A, Class B, Class C)? Which non-traditional anchors make the most and least sense?