According to a new Credit Suisse report, up to 25% of U.S. shopping malls may close in the next five years signaling a retail space market adjustment.
What are the reasons for the market adjustments in the retail space? Of course, Amazon and online shopping are the most glaring causes. However, another factor is mall overexpansion. Currently, there are around 1,200 malls in the US. Between 1970 and 2015, the number of malls grew more than twice as fast as the population. That number is predicted to decline to 900 within the next ten years.
Brick-and-mortar retail stores will never completely disappear because of the needs listed above and because humans are social by nature; only the type and make-up of retail stores will change. Pop-up stores (a strategy utilized with great effect by Halloween stores) will likely become more common.
The market adjustment may result in the closure of 300 malls over the next decade. What to do with the vacant buildings? There is a lot of space that could be used for other purposes. Maybe mall owners will lower their rental rates to continue use . In some areas of Manhattan, retail rents have declined 10-15%.
More housing? Closures from major chains like Macy’s and J.C. Penney are pouring up to 37 million square feet of space back into the market. That could reduce some housing costs however more expensive housing markets generally have greater discretionary spending. The discretionary funds are often used for shopping. Also, the time and cost to demolish existing structures, rezone, and rebuilding them into residential properties along with their infrastructural linkages are not insignificant.
Some mall owners have indicated that vacant properties will be renovated and updated to attract new tenants and raise rental rates.
What to do?
Who knows what the future will bring but keep in mind that juggernauts like Walmart, Macy’s, and Sears are affected, so starting a service or online store that doesn’t compete with what Amazon sells is a safer option. Branding your own product (e.g., Bonobo, Dollar Shave Club), and controlling your own distribution is another option. B2B businesses are insulated from mall closures as no one buys industrial components at malls.
Services such as dentistry, restaurants, car mechanics, and large difficult-to-ship products such as mattresses, etc. will remain (so far) an insulated industry.
Analyses such as what is shown above are a small and cursory part of the industry/market analysis and strategy consulting services provided to clients.