All commercial real estate developers have heard it for years: The traditional mall is dead. Invest elsewhere or you’ll be sorry.
Like a lot of commercial real estate, large retail spaces have been in the process of changing and adapting with customers’ needs over the last decade. Those who haven’t been able to adapt — see Toys R Us, Radio Shack and Blockbuster — have found themselves left behind in the advent of online retail marketing.
But, brick-and-mortar stores are still important. The success of investing in these projects just depends on how well the businesses listen to their customers.
A recent report from Blueprint CBRE highlights the potential future of the biggest retail developments — shopping malls. Here’s what we’ve learned:
Has E-Commerce Overtaken Brick-and-Mortar Stores?
One only needs to look at the rise of online behemoths such as Amazon to know that the days of in-person shopping will never be the same. You may think that brick-and-mortar stores are pointless in this day and age — but the permeation of online retailers into our culture only tells part of the story.
The fact is that, on average, e-commerce only represents about 10 percent of all retail. In North America, physical stores account for roughly 90 percent of all retail sales. However, the impacts of e-commerce sales are felt more in certain industries — many of the industries that shopping malls focused on for so long. While online sales only account for 2 percent of all grocery sales, e-commerce accounts for an average of 20 percent of all apparel sales.
Because so many of the industries that have felt the impact of e-commerce the hardest are those traditionally present in shopping malls, it only makes sense that these retail developments are shrinking.
But, in the best-case scenario, they’re actually learning from the rise of e-commerce and changing their design completely to keep those customers coming in the doors.
Retail Has Responded with New Experiences
While the changes in retail experience can seem inevitable at times, not all retail developers and mall owners are taking it lying down. Instead, they are brainstorming new ways to transform their retail spaces into what customers want.
For example, Blueprint points to Palisades Center in New York City. In its efforts to attract customers to its space, the developer has brought in experiential tenants — such as the world’s tallest indoor ropes course, an indoor speedway, an ice rink and more. And it seems to be paying off; the mall hosts 24 million annual visitors in its 2.2 million square feet of gross leasable area.
Similarly designed shopping malls are in the works, including a retail and entertainment development project in New Jersey (under development since 2002 with plans to open this year). The development, called American Dream Meadowlands, will be 55 percent entertainment — indoor water park, theme park, and more — and 45 percent retail.
Are Shopping Malls Dead Forever?
So, the shopping malls of the future are something completely different than what most developers have clung to for the last few decades. Modern shopping malls will be an experience in and of themselves — dynamic and experiential in incorporating mixed-use development. If you haven’t already heard, mixed-use retail is the new standard, and shopping mall developers have begun to pivot toward this ideal.
Customers aren’t giving up on in-person shopping experiences completely, either. The International Council of Shopping Centers estimated that 84 percent of shoppers would visit a mall or shopping center during the 2018 holiday season. They just expect a little more when choosing this in-person experience over the easier experience of shopping online.
So, whether you’re looking for ways to revamp your traditional retail development, or wondering whether investing in major commercial real estate is a smart idea, don’t forget about what your clients will want — and what kind of tenants you should be looking for.
Want more tips on building out your commercial real estate spaces to bring you the most success? Schedule a consultation with our CEO and co-founder Chris Gardner today.