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How 'Over-Retailed' America Lost its Midtier Shopping Malls

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The death of the American mall is a story repeated so often that in August, the International Council of Shopping Centers hired the public relations firm Burson-Marsteller to, in the words of its communications director, "put the real story out there and stop the negativity around the idea that the mall isn't going to exist in the next few years." That's from a New York Times piece that lays out the present state of shopping malls in America, without all the premature obituarizing, schadenfreude, and exaggeration that usually accompanies writing about the "dead mall." Essentially, high-end malls and outlet malls are thriving, but midtier emporiums are disappearing in a way that reflects the decline of the middle class.

According to Green Street Advisors, which tracks the mall industry, more than two dozen indoor malls have shuttered since 2010, and an additional 60 (or, three percent of indoor malls) are "on the brink," meaning they're over 40 percent vacant. Green Street analyst D. J. Busch calls this "the death spiral." Since 2006, the amount of "healthy" malls, with vacancy rates at or below 10 percent, has dropped from 94 percent to about 80 percent, according to real estate data provider CoStar Group. About 15 percent of indoor malls are 10 to 40 percent vacant, which is up from just 5 percent in 2006.

Busch calls this "very much a haves and have-nots situation." Widening income equality doesn't stop wealthy Americans from shopping at "properties aimed at the top 5 or 10 percent of consumers. But there's been very little income growth in the belly of the economy." Often when a high-end store like a Saks Fifth Avenue pulls up stakes in a mid-tier mall it marks the first blow; later, when stores like Kmart, J. C. Penney, or Sears leave, it's often the end.

Experts say that the rise of online shopping, which makes up about 10 percent of retail spending, isn't enough to explain the decline of middle-end malls. Instead, "the fundamental problem for malls is a glut of stores in many parts of the country, the result of a long boom in building retail space of all kinds." Real estate economist and urban planner Christopher Zahas describes this state as "extremely over-retailed."

If trends continue, we'll keeping seeing outlet malls popping up, with "the A-rated malls, the flagship malls, performing very well," says Steven Lowy, co-chief executive of Westfield Corporation, which owns a lot of malls. But "anything that's caught in the middle of the market is problematic." Also on the rise is what's apparently known in the industry as a "power center"; a mall with "big-box stores like Costco, Best Buy and Target."

At least there'll be more Costcos.

· The Economics (and Nostalgia) of Dead Malls [NYT via Racked]
· How the Cold War Shaped the Design of American Malls [Curbed National]