Amid a decade of negative headlines, U.S. shopping malls are experiencing a significant resurgence, with their values increasing by 13% over the past year. This growth rate has surpassed all other sectors in commercial real estate and doubled the pace of the broader market's recovery, according to data from real estate research firm Green Street.
The turnaround is attributed to a combination of factors, including shifting consumer habits, strategic property redevelopment, and the addition of entertainment and dining options. "In terms of how we think about the malls today fundamentally, this is probably the best it’s felt post-COVID," Ronald Kamdem, head of U.S. REIT and commercial real estate research at Morgan Stanley, told The Wall Street Journal.
This recovery marks a notable reversal from the challenges faced during and after the pandemic, which saw reduced foot traffic and accelerated department store closures. Since 2008, approximately 200 malls have closed nationwide, leaving around 900 still in operation. However, the remaining properties are demonstrating strong performance.
Several of the nation's largest malls are attracting millions of visitors annually. The Mall of America in Minnesota draws 40 million visitors each year, while the American Dream mall in New Jersey also attracts a similar number, boosted by attractions like an indoor ski slope and water park. Other high-traffic centers include The Galleria in Houston, King of Prussia Mall in Pennsylvania, and Aventura Mall in South Florida.
Major mall operators are benefiting from this trend. Simon Property Group's stock has surpassed its 2016 record high, outperforming the S&P 500 over the past year. Unibail-Rodamco-Westfield (URW), after previously planning to exit the U.S. market, is now investing nearly $1 billion to gain full control of two key properties, Westfield UTC in San Diego and Westfield Southcenter near Seattle. URW's U.S. portfolio is currently outgrowing its global holdings, with tenant sales and income showing faster growth.
Companies that have undergone restructuring are also seeing positive results. CBL Properties, which emerged from bankruptcy following the pandemic, has seen its stock increase by 48% since January. The company has been actively acquiring new properties while divesting underperforming locations.
This revitalization is partly driven by evolving tenant mixes. Landlords are replacing traditional department stores with a variety of attractions, including luxury brands, popular restaurants, and entertainment venues, which are proving to be strong draws for consumers. For instance, at West County Center near St. Louis, which had previously struggled with vacancies and debt, new tenants like Cheesecake Factory and Urban Outfitters are set to open, and refinancing efforts are underway.
However, some industry observers remain cautious. Bob Neighoff, a portfolio manager at Mariner Investment Group, suggests that the long-term value of malls may lie more in their land than in the retail experiences they offer, especially given the significant investment required for entertainment and dining concepts.
Despite these concerns, the current market data indicates a robust rebound for U.S. shopping centers, driven by strong consumer spending and strategic adaptations by mall owners.