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Q&A: How malls are becoming multi-use centers as COVID-19 speeds their demise

A mall can’t catch a virus, but COVID-19 still could kill hundreds of U.S. shopping centers if vacancy rates keep rising, a recent report by Barclays Investment Bank said.

“Retailers have been losing foot traffic for years as e-commerce takes an increasing share of sales,” Barclays reported. “COVID-19 has sharply accelerated this trend.”

Fifteen percent of mall stores have closed this year, the report says. If that trend persists, 15-17% of malls will fail and may need to be redeveloped for other uses.

And the most likely uses — such as low-density residential or e-commerce warehouses — won’t be as valuable as the former malls, impacting local government revenue.

We asked retail consultant Greg Stoffel how that trend is playing out in Southern California.

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Q: What happens to ghost malls after the shoppers vanish?

A: In many cases, these malls are poorly located, out of the mainstream and have succumbed over time to centers that are better located and have better quality stores, restaurants and anchors.

Even before COVID-19, and before online shopping became prominent, there were too many shopping centers of all kinds relative to actual buying power in most market areas. Over time, many of these centers tend to lose quality tenants and replace them with tenants who lack the ability to generate customer traffic.

Q: What Southern California malls already have been or are being redeveloped?

A: Indio Fashion Mall, Hawthorne Plaza Mall, the Carousel Mall in San Bernardino, The Quad and Whittwood malls in Whittier, Laguna Hills Mall (which is being rebranded as the Village at Laguna Hills), Valley Plaza in North Hollywood, The City Shopping Center in Orange (which became The Block at Orange and then re-positioned as The Outlets at Orange), and Riverside Plaza.

Q: How are they are being reused?

A: Most owners and potential developers look to a combination of non-retail uses. This includes residential, office, mixed-use developments, fulfillment centers, etc., that include a little of everything like retail, dining and entertainment.

A good example is Westminster Downtown in Westminster, Colorado. What was a ghost mall was largely demolished and is now being re-developed as a mixed-use downtown with residential, hotels and offices with dining, entertainment and retail on the ground floor.

Q: How are redeveloped malls in our region being reused?

A: The Village at Laguna Hills (briefly called the Five Lagunas) will be the most dramatic. The mix will include a hotel, office space, apartments and retail and dining and a large movie theatre (depending on the future of movie-going).

Hawthorne Plaza closed in 1999 and still sits empty. Various plans have been proposed for the property but nothing has happened so far.

Riverside Plaza was originally an open-air center that was remodeled into an enclosed center. Due to department store closures, the center was remodeled into an open-air center again. Today it has Trader Joe’s, Vons Grocery, Regal Cinemas, Nordstrom Rack and several restaurants.

Q: Which Southern California Malls are at most risk of closing due to COVID-19?

A: I am not sure that any malls would close based only on the impact of COVID-19. The pandemic may accelerate the demise of a center or two, but there were likely already problems in generating sufficient sales.

Gregory Stoffel is a retail analyst who’s spent years analyzing malls in California. (Courtesy of Stoffel)

Q: Barclays said some of the new developments aren’t as valuable as malls, with valuations dropping 60-90%. Is that the case here?

A: If a bad mall can’t be redeveloped with a mixture of uses, yes the property values will decline.

This decline was likely already in process with taxable sales declining due to changing consumer preferences and patronage patterns. Cities are trying to hold on to whatever taxable sales can be generated and sometimes have unrealistic ideas on what a property can generate in the future.

Q: Looking 10 to 20 years down the road, will malls like South Coast Plaza, Fashion Island, the Beverly Center and Ontario Mills still be around? If so, how will they be different than today?

A: Most malls will need to downsize their retail space as customer shopping patterns continue to evolve. There will be more of a premium on experience as well as unique merchandise.

Millennials will be older and Gen Z customers will have a big influence on shopping, dining and entertainment trends.

Larger, well-located premier malls will modify their tenant mix over time to include even more diverse tenant types. This will continue to be at the expense of lesser quality centers.

Centers like Fashion Island and Irvine Spectrum Center should be able to evolve as they offer outdoor environments and have the ability to offer a diverse range of authentic experiences and social interactions.

Larger upscale enclosed centers like South Coast Plaza and Beverly Center will likely need to reduce their retail footprint over time as upscale retailers evolve their business models to combine online and in-store retailing.

GREG STOFFEL

  • Title: Principal
  • Organization: Stoffel & Associates
  • Residence: Temecula
  • Education: Bachelor’s degree in communications, Cal State Fullerton
  • Previous experience: Consulting on retail/dining/entertainment projects since 1988, working on over 90 master-planned developments, cities and towns, as well as over 400 individual retail, dining and entertainment projects throughout the U.S. Some of his best known projects included Downtown Disney, the Irvine Spectrum Center, Fashion Island and CityWalk.

FIVE FACTS ABOUT GREG STOFFEL

  1. Married for 40 years, with two children and two grandchildren
  2. Recently resettled in the Temecula wine country after 30 years in Irvine
  3. Loves to golf, hike, fish, travel, work on home improvements, and spend time with family and friends.
  4. He’s a stiff competitor at golf, cornhole, darts, horseshoes and cards. 
  5. He has remodeled several kitchens, bathrooms and recently renovated his guest house.

See also: 10 ways you’ll shop differently in about a decade (cue the robots!)


Source: Orange County Register

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