Malls differ in coping with bad economy

A row of strip mall storefronts stands vacant in Fontana, Calif.

TEXT OF STORY

KAI RYSSDAL: There was yet more not-entirely-promising news from the world of retail today. Macy's says it's closing five stores that weren't earning their keep in cities from Burlington, N.J., all the way to Missoula, Mont.

In a lot of malls out there Macy's is what's called an "anchor tenant." It takes up the biggest retail space and helps draw customers who then spend money at, I don't know, Yankee Candle or Panda Express or something. Solid anchors are vital in both traditional malls and at strip malls.

But Marketplace's Jeremy Hobson reports those two types of malls are reacting to the economy somewhat differently.


JEREMY HOBSON: If you look at vacancy rates, you'll see that regional shopping malls are around 8 percent empty, while strip malls are around 11 percent empty.

Hessam Nadji is managing director at Marcus and Millichap Real Estate Investment Services. He says one reason for the difference is an oversupply of strip malls. They're cheaper and easier to build than great, big gallerias.

HESSAM NADJI: Because of the housing boom, there was a lot more construction of strip malls in reaction to the overheated housing market than there was construction of new malls.

Plus, he says, big shopping malls are more immune to the recession because -- thanks to their food courts and movie theaters -- they have an entertainment value that strip malls don't have.

NADJI: You also have to take a look at the tenant mix that makes up a lot of demand for strip centers. And, unfortunately, a lot of them are local, smaller retailers that are under a lot of pressure right now.

Unlike chain stores that you see in a shopping mall, which don't have to rely on just one location for business.

Dan Fasulo is managing director at Real Capital Analytics. He says strip mall performance varies from town to town. He told me about one he recently came across in Las Vegas.

DAN FASULO: There's one strip center that's legitimately in the middle of a desert. And you can see kind of all the residential plots that were laid out around it. Now that residential development that was gonna follow did not happen. That's certainly going to have an impact on the performance of the center.

Fasulo says in the Sunbelt, which saw the biggest strip mall boom, there'll be no new supply added to the market for years.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...