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Mall Operators Are Trying Everything To Fight Off High Vacancy Rates

Image via Sunyu Kim on Unsplash

The United States has significantly more retail space per capita than anywhere else in the world. Thanks to thousands of malls scattered across the country, the U.S. has 23.5 square feet of retail space per person. Canada and Australia, which follow, have 16.8 and 11.2 square feet of retail space per person, respectively.

As a result of a number of factors such as the rise of e-commerce, changing consumer behaviors and rising rents, shopping malls have been hit particularly hard over the last decade. The mall vacancy rate in the U.S. is now at an all-time high of 9.7%, according to Reis Moody’s Analytics. That's higher than the 6.8% vacancy rate following the 2001 recession and the 9.4% vacancy rate following the 2008 financial crisis. 

As shopping malls have seen vacancy rates spike amidst store closing after store closing, mall operators are beginning to think outside of the box to make up for the lost income. 

Last week, Simon Property Group, which is the largest shopping mall operator in the U.S., struck a deal with hotelier Accor and hospitality firm SBE Entertainment Group to build nearly 200 ghost kitchens at malls and hotels across the U.S. Ghost kitchens, which are food preparation and cooking facilities set up for the preparation of delivery-only meals, are becoming popular as consumers increasingly prefer to have food delivered. Simon is even partnering with Cloudkitchen, which is a ghost kitchen company founded by none other than Uber co-founder and former CEO Travis Kalanick, to utilize vacant retail space in the Los Angeles area. 

Over the weekend, Simon joined a consortium of buyers alongside Brookfield Properties and Authentic Brands Group in agreeing to a deal to acquire the assets of bankrupt retailer Forever 21. The deal still must be approved by a judge, with other potential buyers having until February 7 to submit bids for the company. The proposed deal is certainly driven by Simon's desire to prevent Forever 21 from having to close the remainder of its stores, many of which are in malls owned by Simon.

This isn't the first time Simon has acquired a store out of bankruptcy to prevent store closures. Simon teamed up with General Growth Properties in 2016 to rescue bankrupt retailer Aéropostale, preventing a few hundred stores from closing.   

Simon is also thinking outside of the box just to get people into its malls. Last year, Simon struck a partnership with esports promotion and arena operator Allied Esports after investing $5 million in its parent company, Black Ridge Acquisition Corp. As part of the agreement, Simon will build venues for the increasingly popular esports competitions in its malls. 

"This is exactly the type of innovative activation that excites our customers and drives traffic for our centers at Simon," Simon Executive Vice President of Corporate Real Estate Mark Silvestri said. "Simon’s successful locations are ideally suited to provide these new and exciting community spaces, complementing our other dynamic offerings."

With the headwinds facing brick-and-mortar retailers unlikely to subside anytime soon, it's almost certain that additional tenants will be forced into bankruptcy. Forever 21 likely won't be the last retailer that is bought out of bankruptcy by a mall operator just to prevent stores from becoming vacant. Mall operators will likely have to continue to come up with other innovative ideas just to draw people into their malls or that 9.7% vacancy rate won't look so bad in a few years.

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