After years of obituaries, malls just posted the strongest run in commercial property. Real estate researcher Green Street says values jumped 13% over the last 12 months, the best showing of any sector and roughly double the speed of the broader commercial recovery. Speaking to the Wall Street Journal, Morgan Stanley's lead for US REIT and commercial real estate analysis, Ronald Kamdem, said, "In terms of how we think about the malls today fundamentally, this is probably the best it's felt post-COVID."
It is a sharp turn from five years ago, when lockdowns crushed visits and department-store closures were already hollowing out centers. Since 2008, about 200 malls have gone dark, leaving roughly 900 still operating.
The biggest destinations are pulling theme-park numbers. Minnesota's Mall of America draws around 40 million visits a year across 500 plus stores and more than 50 restaurants. New Jersey's American Dream hits a comparable 40 million, featuring an indoor ski slope and the DreamWorks Water Park, among the largest in North America, plus more than 300 stores.
Houston's the Galleria attracts upward of 30 million visitors annually, helped by its center court ice rink and a lineup topping 400 stores. Pennsylvania's King of Prussia Mall, known for one of the deepest luxury-brand rosters in the country and 450 plus stores, sees about 25 million visits a year. In South Florida, Aventura Mall completes the elite group, drawing about 25 to 28 million visitors each year across 300+ shops.
Investors who have soured on weak office and apartment returns are rediscovering brick and mortar, and not just because the math looks better. Consumer spending has held up, store failures have been sparse, and many landlords replaced empty anchors with luxury tenants, buzzy restaurants and entertainment.
Simon Property Group, the country's dominant mall owner, saw its stock eclipse its prior 2016 peak in July and top the S&P 500 over the past year. Unibail-Rodamco-Westfield reversed its plan to leave the U.S. and is putting nearly $1 billion to work this year to purchase partners' stakes and assume full ownership of Westfield UTC in San Diego and Westfield Southcenter near Seattle. The Journal quoted chief executive Vincent Rouget as saying, "We see the type of rent growth that we haven't seen since the beginning of the 2010s." He said the company's American portfolio is now growing faster than the rest of its global holdings, with tenant sales and income running ahead of the company average even after URW sold a string of weaker assets in recent years.
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CBL Properties, based in Chattanooga, went through a year in bankruptcy during the pandemic, shed over two dozen underperforming malls since 2013, and has picked up five new properties since last July. Its shares have climbed 48% since January. "It's really been, I think, even better than we had hoped," said CEO Stephen Lebovitz.
Not everyone is convinced this renaissance will stick. Bob Neighoff, a portfolio manager with Mariner Investment Group, told the Journal, "Unlocking the dirt is the true value of the mall," adding that he is "a little more cautious on the actual retail experience of the mall being something to hang your hat on."
One case study shows how far the rebound had to travel. West County Center outside St. Louis - at 1.2 million square feet - could not refinance in 2022 as lenders pulled back from midtier malls. Over the preceding ten years, its appraised value dropped 30%, three of the four prime restaurant pads were vacant, and a rival mall was siphoning customers from its Nordstrom anchor.
Meanwhile, the vibe shift is visible on the ground. At Tysons Corner Center in Virginia, a mother looked on as her 13 year old hunted for sweatpants from online favorite Edikted, meanwhile choosing sneakers for the rest of the family herself. "She has more expensive makeup than I do," she joked. "And a lot more."
What to watch next is simple - values, foot traffic at the flagships, and who is buying. Those numbers tell you where shoppers and owners are voting with their feet and their wallets, which is the signal that matters for your money.
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