Mixing it Up: Reimagining the Traditional Mall for New Uses
October 13, 2021
Q&A with CBRE’s Specialized Mall Practice Leaders, Mark Hunter and Todd CarusoAs retail owners and investors actively seek new strategies to increase the profitability of traditional malls, the right solution can involve a complex mixture of adaptive reuse, capital allocation and economic incentives. To assist owners with the repositioning and reimagining of these traditional mall assets, CBRE recently announced the formation of a specialized team within its Mall and Large Format Retail practice, which will work with owners to find the highest and best use for their properties.
Using the company’s proprietary Location Intelligence technology, the team will harness several strategies, including leasing, redevelopment, financing, sales and securing public incentives, among others. Team leaders Mark Hunter, Managing Director of Mall and Large Format Retail, and Todd Caruso, Senior Managing Director Retail Investor Services, answered some key questions behind the formation and role of their new team:
Why is now the right time to launch this team?Hunter: There is a lot of disruption in the mall space, and clients are looking for answers and solutions to the challenges they face. This trend began about 10 years ago when the department store model started to fade. Originally, department stores moved to the suburbs and acted as anchors for malls. Without these anchors, the disruption of the space has created a lot of challenges. One way to address this is to find ways to repurpose the space.
Caruso: E-commerce has shined a light on the over-supply of retail as well. When we dissect malls today, we see that the format has been failing in many cases. There has been an acknowledgment that there needs to be a change. However, just because a traditional mall format might not work at a location, it doesn’t mean that it’s not great real estate. The solution can be to look at other property types—life sciences, industrial, residential, healthcare—there could be a lot of opportunities.
Is there a specific type of mall you are targeting?Hunter: Whether it is an A, B or C class mall, in a major metro area or a second-tier area, all mall owners need to be looking at this. There is too much retail space, even in some performing malls. You are not going to be able to rely on retailers to increase occupancy. You will need additional, complementary, non-retail uses.
What are the first steps you take when assessing a mall’s possibilities?Hunter: First we have to understand the needs and the objectives of the owner, and then we lean into our data and our location intelligence. That is our road map. We have learned that one size does not fit all. The solution is customized, and you can’t replicate one mall’s process.
What is the technology you are using?Caruso: We have a proprietary location intelligence system that measures an area’s demand based on an assessment of existing supply. It looks at the demographics and psychographics of the area and helps us identify the undersupply of product in the area—whether it be multifamily, healthcare, industrial. We look at the variables of each product type.
Are you surprised sometimes by what the data says?Hunter: Yes. We had one location that was two miles from San Francisco International Airport. It is surrounded by several major interstates. I thought it would score higher for logistics. But there are not a lot of residents around, so it wasn’t a great last-mile location. I’ve also learned that you don’t need a massive industrial footprint to develop last-mile distribution centers. In many cases, you only need 20,000 square feet to make it work.
Caruso: I’ve also been surprised by the level of life sciences and lab interest for certain sites. I would not have typically considered a retail center a fit for life science users, but data says that it works.
Is there sometimes a resistance from mall owners to move away from retail?Caruso: There is some resistance from owners because they believe that it will be too much work to get entitlement or zoning changes for the property. That tide is turning though, as more municipalities are willing to work with owners. They see some of these centers sitting with 40% vacancy, and they realize retail is likely not coming back. In many cases, the municipalities are now even providing incentives, such as establishing tax-increment financing (TIF) or sales tax rebates, to get projects going.
Hunter: The capital requirement can be a challenge as well. If you have an existing box that can be repurposed, it’s more enticing. If you have to demolish a building or do a heavy retrofit, that cost can be high. Owners must have patience and capital to pull off some of these solutions.