23 July 2019

High-End Malls Get Boost

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The nation’s high-end malls are posting record sales, thanks in part to the growing presence of technology retailers that sell pricey goods. At a time when some big department stores are struggling and Internet shopping is on the rise, the mall industry is doing surprisingly well. Sales have risen each year since the recession, from $383 per square foot in 2009 to an estimated $478 in 2014, says the International Council of Shopping Centers.

Malls owned by real-estate investment trusts, which tend to have more luxury tenants and often are located in large population centers, generated a record $550 in per-square-foot sales in the third quarter of 2014, shattering the previous high of $450 a square foot reached in 2007, according to REIT research firm Green Street Advisors.

No one tracks sales per square foot across all retail stores. But landlords say a big driver of malls’ recent resurgence has been a new generation of technology-focused tenants, such as Tesla, Apple Inc. and Microsoft Inc., that are ringing up strong sales and supplanting “anchor” department stores that malls used to rely on to bring in customers.

General Growth Properties Inc., the nation’s second-largest mall operator, said Apple’s rollout of the iPhone 6 was a main driver of its 6.7% increase in September monthly sales. Without Apple, sales would have risen only 4%, Chief Executive Sandeep Mathrani told analysts in October.

Yet for malls overall, the trend is moving the other way: Sales per square foot among mall REITs are up 36% since 2010, according to Green Street. That is a sign that mall owners are pruning their portfolios of less-productive properties while filling vacant spaces with more-productive retailers, including high-tech tenants.

The new tenants tend to be far more profitable for malls than anchor stores because, under typical lease agreements, they are required to share a percentage of their sales with their landlords. Anchor tenants, by contrast, typically own their spaces outright, though they often contribute fees to help maintain common spaces. They serve mall owners mainly by attracting shoppers to the smaller retailers between the anchors, known as “inline” stores.

Investors have benefited from malls’ resurgence. In all, REITs that own regional malls produced a total return of 35% in 2014, including dividends, according to the National Association of Real Estate Investment Trusts, second only to apartments and health-care properties among the big REIT categories.

High-tech stores have helped malls fend off the Internet challenge as well. The share of retail sales completed online has risen steadily, from 4% in the third quarter of 2009 to 6.6% in the third quarter of 2014, according to the most recent data available from the National Retail Federation.

High-tech tenants are a recent phenomenon. Over the past decade, the number of Apple stores in North American malls has grown to 219 from just a handful. Microsoft has opened 70 store locations in malls since 2009 and Tesla 25 since 2008, according to Green Street.

Click here to access the full article on The Wall Street Journal. 

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