Having long-struggled from the waning appeal of brick-and-mortar retailers and the ever-increasing competition from e-commerce giants like Amazon, traditional shopping centers received a new blow during the Covid-19 pandemic as footfall and rent income fell dramatically.

Malls will have to change direction and adapt to new expectations to recover, according to RLA Global CEO Roger Allen. "To survive in a post-Covid world, mall owners need to realize it is not only retail that is changing, but also the way customers consume leisure and entertainment," he said.

Repurposing plans came to an abrupt halt  

In recent years, shopping centers had already started to turn to new type of tenants. Entertainment firms, like Scene75 with family attractions and rides, The Void with virtual reality (VR) experiences or Meow Wolf with experimental art installations, offered a potential lifeline for malls.  

But entertainment complexes closed and shopping center owners saw many tenants, including a well-known department store and apparel brands, have trouble paying rent or go bankrupt last year due to lockdowns and evaporating consumer confidence amid the pandemic.

Investors were subsequently hit by a drop in rental income. CBL and PREIT, two real estate investment trusts with 126 malls across the US, filed for bankruptcy protection in November 2020. Both experienced over 7% decline in footfall with 11% and 13.4% of their tenants having filed for bankruptcy respectively.

Five other US mall owners also faced "trouble brewing" last fall, S&P Global said in December.

In the less crowded European retail scene, French shopping center investor Klépierre increased retail sales to 90% of prior-year levels in July-September from 76% in May. But its rental income from shopping centers was still down by 7.1% in January-September. Landsec, a UK real estate firm, received only 51% of rent due in March-September 2020 from tenants in its regional shopping centers.

"With regards to shopping centers and when rents will get back to pre-Covid levels, the honest answer to that is never" Landsec CEO Mark Allan said at the European Public Real Estate Association's Insight webinar in January 2021. "Perversely, the acceleration from Covid we're now going to see in [retailer insolvencies] over the next 6 to 12 months will actually be helpful, ultimately, because it will get us to a sustainable level," he added.

Covid-19 is speeding up transformation

Experts agree that the pandemic is accelerating the ongoing decline of shopping centers, with falling visitor numbers,  partially due to booming e-commerce and the centers losing their relevancy with their guests. Barclays has estimated that 15-17% of malls in the US would become unviable and may need to be redeveloped for other uses, such as residential and mixed-use purposes or e-commerce warehousing.

Other strategies to consider are shaking up the tenant mix (attracting direct-to-consumer (DTC) digital-only brands with favorable short-term lease options), redefining store formats (pop-up or micro-retailing spaces) and focusing on the adaptive reuse of space (hosting outdoor events in parking lots or having delivery-only ghost kitchens in vacant retail units).

Embracing wellness components, including health, fitness and beauty more thoughtfully could also contribute to increasing footfall and improving the overall mall experience. In its Destination 2028 concept, shopping center operator Westfield has even envisioned adding "betterment zones" with mindfulness workshops and tranquil green space.

Beside blurring the line between retail and leisure, shopping malls of the future should also emphasize their role as community hubs - for instance, by offering co-working facilities, once the pandemic situation allows. This could not only support the adaptive reuse of retail space, but may also bring in a new cohort of repeat visitors through membership programs

A new chance for an entertainment revival?

Shopping center visitors are expected to be drawn to new mixed-use projects with strong leisure and entertainment offerings that help them find the social interaction they crave, especially after the pandemic, Deloitte said in a recent outlook on the future of malls.

With the roll-out of a vaccination, people will potentially seek more indoor leisure experiences. "It is a very long time since any of us have been to the cinema or indoor-skiing or bowling" Allan at Landsec said. "We will see a very strong bounce-back in demand for that" he predicted.

This could potentially offer a second chance for shopping center investors to explore creative and innovative entertainment and leisure options, which can bring in returning customers. Some entertainment and leisure companies seem to be ready for the challenge:

  • ILMxLAB, a subsidiary of Lucasfilm, has teamed up with location-based VR company Nomadic to launch pop-up lightsaber training areas with VR headsets at Simon shopping centers and Cinemark movie theaters across the US and Canada.
  • Meow Wolf has reiterated it was on track to open its second permanent establishment at the new Area15 experiential retail and entertainment complex in Las Vegas in early 2021, and is also seeking to launch a third location in the US at Denver later this year.
  • Flip Out, a UK trampoline and adventure park operator, opened in December a new indoor facility with an ice rink, bumper car track, interactive mini golf and other features in a former two-story BHS department store in Friars Square Shopping Centre in Aylesbury.

  • Electric Gamebox, a UK-based entertainment technology firm, opened in December its first interactive Gamebox venue in the US at the Grandscape mixed-use center in Dallas. It would expand across the US in 2021 with a plan to open an additional 100+ locations.

  • Merlin Entertainments, an attractions operator and location-based family entertainment firm, is planning to open its new Legoland Discovery Center at the Great Mall shopping center in Milpitas, California this spring after construction was delayed by Covid-19.         

Adding new leisure or entertainment offerings, however, might be too little, too late for category B or C shopping centers. "It’s the weaker ones that will suffer. The future of the mall isn’t doomed or completely redundant. It’s just that 2021 will be a year of reckoning for underperforming properties" Neil Saunders, Managing Director at retail consultancy GlobalData, said.

Pro-active approach is imperative for change

Looking ahead, retail experts believe malls and shopping centers will continue seeing a significant shift in their tenant mix with cross-overs likely to pick up pace even more in 2021. Real estate advisors warn that change is not an option, it is required for survival, and entertainment operations are expected to occupy a growing footprint in malls.

“Shopping centers will have to start looking at themselves as destinations and experiences. It is no longer good enough to just rent out stores and collect rent. It is about making sure that guests come to you for your destinations’ experience. The shopping center owners will have to realize that their brands are guests too and they have a choice. Owners should consider re-writing their rental contracts in more creative ways to ensure that the brand and the shopping mall are aligned from a financial point of view. The owners have to create a win-win situation with the brands. It will be those destinations that will create relationships with the brands, beyond the contact, that will make them attractive for the brands and therefore make the shopping center attractive for the guest. It is a symbiotic relationship and no longer an Owner/ Tenants relationship” said Marco Nijhof, Chairman, RLA Global.  

"Dying shopping center businesses will see their revenues continue to plunge unless they swiftly change strategy from simply being a collection of retailers. It’s the experience that counts" Allen reiterated. "Mall owners and operators must take a more pro-active management approach. Instead of just seeking fixed rents in long-term contracts, they need to have their fingers on the pulse of the market, as well as social and experiential trends" he added.  

 

About the author:  Roger  A. Allen, RLA Global Group CEO

Roger is the Group CEO of RLA Global (RLA Global) and brings a no-nonsense approach to the leisure industry,  which is based on a proven track record of representing owners and operators best interests. Roger has worked with many of the leading real estate developers, entertainment venues, hotel operating brands and most influential hotel owners around the world.  Furthermore, successful ongoing engagements with government entities and high net worth individuals keep him fully engaged with the day to day project development responsibilities.

 

 

Insights relating to this topic

'Hospitality will Win Through': View from Dubai.

May / 2021

Paul Boldy, Managing Director of RLA Global Middle East is interviewed for the latest issue of Construction Manager Magazine.

'Hospitality will Win Through': View from Dubai.

May / 2021

Paul Boldy, Managing Director of RLA Global Middle East is interviewed for the latest issue of Construction Manager Magazine. Read more

Design for Social Wellness: How Third Places Open Doors to Building Community

Mar / 2021

Having been stuck in one place for more than a year, there has been a lot of thinking about the concept of “third places” and their role in social wellness.

Design for Social Wellness: How Third Places Open Doors to Building Community

Mar / 2021

Having been stuck in one place for more than a year, there has been a lot of thinking about the concept of “third places” and their role in social wellness. Read more

News relating to this topic

RLA Global appoints managing director in the Middle East

Mar / 2021

RLA Global announces the appointment of Paul Boldy to the role of Managing Director of RLA Global, Middle East.

RLA Global appoints managing director in the Middle East

Mar / 2021

RLA Global announces the appointment of Paul Boldy to the role of Managing Director of RLA Global, Middle East. Read more

Resources for Leisure Assets goes global

Mar / 2021

Resources for Leisure Assets has changed its name to RLA Global to reflect its position as an expanding worldwide expert in tourism, resorts, destinations, leisure and wellbeing in real estate.

Resources for Leisure Assets goes global

Mar / 2021

Resources for Leisure Assets has changed its name to RLA Global to reflect its position as an expanding worldwide expert in tourism, resorts, destinations, leisure and wellbeing in real estate. Read more

Meet Roger A. Allen

Learn more about the author

Interested in related topics?

Sign up for our eNewsletter

Thank you for subscribing!