The Suburban City Center
The Fifth View for the Future of the Suburban Mall
By Blaze L. Cambruzzi, MBA, MSFRE – Chief Operating Officer
One of my favorite American traditions is the anniversary remake. What's an anniversary remake? This is the rapidly occurring phenomena whereby anything that was successful 20, 30, 50 and beyond years ago gets remade with a modern flair. Consider some of the direct examples such as the new versions of Cinderella and The Wizard of Oz as well as indirect examples such as the hit series The Goldberg's which is strikingly similar to the Wonder Years but set in a different era… and coincidentally launched about 20 years after the latter ended. So as we look ahead, what anniversary remakes might be on the horizon?
After World War II, American troops began coming home to find a shortage in housing which eventually spread to massive housing growth. For example, the popularly known Levittown, New York began offering homes for sale in March of 1947 and sold 1,400 in the first three hours alone. Over the next ten years these housing developments proliferated across the country establishing a manifest destiny for new forms of retail. Then in 1956 it happened, the first fully enclosed mall in America opened in a Minneapolis suburb. Within ten years enclosed malls were popping up in major markets all over the country including Randhurst Mall outside Chicago in 1962 and the King of Prussia Mall in 1963. Eventually enclosed malls made their way to secondary and tertiary markets with a saturation pinnacle around the mid-
1980's. This widespread development was fueled by numerous factors including pent up suburban demand for retail, emerging capital funding vehicles such as REITS, and heavy tax benefits that would not end until 1986. By the end of the 1980's the impact of the suburban shopping mall coupled with continued housing sprawl would prove disruptive for the downtowns of secondary and tertiary markets.
This suburban colonization coupled with a proliferation of zoning regulations replaced the city's mixed-use / live, work, play system with a fragmented concept whereby residential would be in one location, office and industrial parks in another, and retail in yet a third spot. Fundamentally, economic
activity sprawled from a focused and organized city grid to a random series of highways, exits, and connector roads.
The picture is not uniform and in fact many first tier suburban malls are doing very well and seeing new tenants such as the Apple Store drive sales per square foot to all-time highs. In contrast however, those malls in tighter markets with distressed anchors and or national tenants opting for off-mall locations may not be having the same experience. It is these instances where our socioeconomic realities are ripe for that roughly fifty year anniversary remake. In fact, there are numerous examples where this remake has already begun. The big question we are now presented with is how will enclosed suburban malls be remade? While only time will tell for sure, one thing that can easily be agreed upon is that most of these malls are situated at prime locations. They are well located to infrastructure, housing, and lateral amenities, but also offer tremendous amounts of parking and easy access all of which hold a premium value in today's economy. With all of this in mind, here are five views for the future of the suburban mall that capitalize on the intrinsic value they offer as the suburban city center.
1. The Short Answer: When an anchor position comes available, the short answer is just to find a new tenant. Unfortunately, there is a limited pool traditional mall department store anchors and many are not seeking to backfill these locations. The next round of anchor replacements can be discounters, club stores, entertainment venues such as movie theaters, or category focused retail models such as furniture, sporting goods, children's goods, etc. These can be suitable options but in circumstances such as discounters and club stores the appeal of the mall may be permanently transformed and irrecoverable losses to in-mall traffic may propel a continued decline.
2. The Intense Answer: As retailers gravitate to layouts which are more efficient and driven by psychology they are finding value in open air centers. These properties offer a different consumer experience which is highly conducive to brand building. Consider the value achieved when a retailer has exterior signage directly over their space, furthermore, co-branding initiatives are much more possible. Lastly, because there centers have less enclosed common area, they can be more cost efficient. For all these reasons, in many markets mall owners are converting enclosed malls to open air centers such as the West Manchester Mall. While this option has benefits, in many cases it is not economically possible until the mall hits severe deficits in occupancy and deferred maintenance.
3. The Office Answer: One much overlooked reality in secondary and tertiary suburban markets is the lack of new office space supply. This comes at a time when the service sector is experiencing excellent growth and demand for office space is mounting. The challenge is multifaceted with the primary supply side challenge originates from office space lease rates in these markets that dwarf the rates necessary to support new construction. Other challenges are derived from the demand side in that much of the existing office space offers layouts which work directly against a growing millennial culture. For example, many next generation office residents grew up under circumstances where punishment was given in the form of isolation, i.e. a timeout… which is strikingly similar to the private office concept. Whereas, the trends in office space today call for more open spaces than what the current supply offers. Mall space may present an excellent opportunity to supply the right office design and layout without the burden or cost of new construction. Additionally, the lateral amenities to an office user in a mall setting are tremendous. Enclosed walking for wellness programs, food and shopping options, open space that can rival Silicone Valley (Sort of). These are the types of benefits offered with downtown office space except with the benefit and being fully enclosed… think no wet shoes after a lunchtime trek through snow. Additionally, these malls are well located to infrastructure and loaded with parking so the commute may be easier and more enjoyable. Lastly, malls can offer office dwelling companies something that is very difficult in most office locations, signage. One of the best trends in office space is company branding with signage and location and a mall can be very powerful in this regard. Consider telling someone your office is located at 3488 West Brickville Pike suite 315B against telling someone your office is located at the mall.
4. The Medical Answer: There are very few markets today which are not experiencing growth in the health sector and for this segment the mall may be the best answer of all. Large open spaces specifically designed to handle large amounts of foot-traffic and capable of large deliveries and heavy power consumption. In fact, all the benefits of point three above apply but there is an additional benefit for medical to create a unique patient experience while instantly branding as a fixture of the community. You really have to recognize that in today's economy the medical industry parallels retail in numerous ways and with the constraints of land development and existing office supply, malls should not be ignored as exceptional opportunities.
5. The Suburban City Center Answer: Lastly, across the macro economy cities are experiencing renewed success in attracting business, retail, and residents. While not a perfect parallel, we must consider that the value of the city is in part drawn from the aggregations of business, retail, and housing in close proximity. This creates a social environment that is not only in vogue but also well aligned with a staple of the American consumer, convenience. When you really consider the role of a suburban mall in a secondary or tertiary market where the Goldilocks value proposition of not too big and not too small prevails these properties are very well positioned to serve as centers of commerce, places of community, and points of destination in the suburbs, or as I have labeled it here, the Suburban City Center.
About the Author:
BLAZE CAMBRUZZI, MBA, MSFRE
Blaze came to ROCK Commercial Real Estate in 2012 with 14 years of experience including an eclectic background of brokerage, property & asset management, development, acquisitions, and dispositions in retail, office, industrial, residential, and hospitality properties. Blaze holds multiple degrees including a Masters of Finance and Real Estate from American University and a Masters of Business Administration from Millersville University. In the COO role he works closely with the organization’s business functions as well as its strategic planning.
Blaze has served on multiple boards and committees including the Urban Land Institute’s Philadelphia Executive Committee and Central PA Committee; Pennsylvania Association of Realtors' Board of Directors and Commercial, Industrial, and Investment Committee; Lancaster County Association of Realtors' Commercial and Industrial Council, serving as 2008 President and honored as 2008 Member of the Year, and Government Affairs Committee.
In addition to his duties at ROCK, he also teaches at Millersville University. Courses include, Real Estate Investment and Finance, Business Government and Society, Marketing, and other topics.
For more information on Blaze and to contact him: Rock Real Estate