Shopping malls were facing a major need for evolution before COVID-19 hit the scene due to the rise of online shopping. The introduction of new pandemic restrictions has forced the former kings of retail to change their game even more rapidly or be left in Amazon’s dust. According to a report cited by CNBC, nearly half of department store anchors are expected to close shop by the end of 2021.
Many mall redevelopers are taking a proactive approach to the issue and finding ways to include multifamily housing into their renovation plans. Combining apartment housing with retail provides a built-in customer base for retail stores that could help sustain foot traffic in the era of online shopping and social distancing.
Here are two examples of the apartment-to-multifamily conversions that are already in progress:
- Northland Center Mall, a former retail hub located in the Detroit metro, was recently purchased by Contour Companies with hopes of transforming the retail space into a walkable, multi-use urban center. Much of the original structure will be left intact and will house community-focused retail options and a public clubhouse. New construction will add 14 five-story multifamily buildings representing over 1,300 new apartment units.
- The Alderwood Mall, located in the Seattle metro, plans to address all of its potential weaknesses via an ambitious redevelopment plan that is already underway. The mall is currently operating at 95% retail capacity via heightened safety measures and will be opening an Amazon retail space later in 2021. Developers will soon replace the former Sears anchor site with two, six-story multifamily buildings that will add over 300 multifamily units and an additional 90,000-square-feet of built-in retail space.
And here are more examples of struggling shopping malls that are ideal locations for multifamily housing development:
Fiesta Mall – Phoenix, Arizona
Back in the 1980s, Fiesta Mall was the retail jewel of the metro’s burgeoning East Valley suburbs; public concerts at the mall (including an appearance by Avril Lavigne) once drew thousands of attendees. Significant competition in the early 2000s pushed the mall to the brink until it finally was closed permanently in 2018.
Today, the surrounding submarket continues to experience strong annual rent growth thanks to the ongoing influx of jobs and people moving into the metro. The former mall’s location next to a major highway also highlights an opportunity to meet the demands of commuters and service industry renters alike.
Compared to adjacent apartment construction hotspots, like North Tempe, South Mesa is far from overbuilt. Just 5% of the submarket’s apartment stock was built in the last five years. Occupancy in the submarket has also remained stable since last year, up 50 basis points to 96.2%.
Galleria at Pittsburgh Mills – Pittsburgh, Pennsylvania
Once a chief rival to the still-standing King of Prussia mall and one of the largest malls in the state, the 1.1 million-square-foot Galleria at Pittsburgh Mills saw a major decline in foot traffic starting in the mid-2000s. Following the departure of one major anchor after another, the retail space closed for good in 2015.
The former mall now sits just 20 minutes away from Pittsburgh’s East End, a new development hub focused on residential construction and job growth along Pennsylvania Avenue. Also nearby are a multitude of golf courses, country clubs, and nature parks.
The presence of new development and long-standing, high-end amenities reflects the unique advantages to transforming the Galleria into a multifamily mixed-use development. Situated adjacent to state highway Route 28, the mall’s location will become even more valuable as the Pittsburgh metro continues to build eastward.
Forest Fair Village Mall – Cincinnati, Ohio
Forest Fair Village originally opened in 1989 and went on to survive multiple bankruptcies, renovations, and rebrands. The shopping mall’s final decline began in the mid-2000s until all but a pair of tenants, Kohl’s and Bass Pro Shop, vacated the mall by the start of 2018.
The decline of traditional retail aside, the surrounding submarket has earned a reputation for being one of the metro’s most attractive areas to do business. Corporate tenants operating in the area include Cincinnati Financial Corporation, Skyline Chili, Pacific Manufacturing and Koch Foods.
Butler County has been recognized for its business-friendly policies that encourage corporations to establish a long-term presence in the community. The Fischer Group, a manufacturer headquartered just five miles from the former mall, recently announced plans to add 400 jobs to the submarket over the next five years.
The submarket also boasts the metro’s third-highest median income and third lowest percentage of residents employed in high-risk industries. These trends emphasize the potential to transform the mall into an innovative residential space that fits the needs of the metro’s growing workforce.
Creativity and experience have never been more valuable commodities in the commercial real estate industry. Those very qualities have allowed Berkadia to continue serving our clients as we navigate the unexpected together. Reach out to us today to learn more about the unique opportunities on our radars for the second half of in 2020.