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GGP: Redevelopment Helps Drive Traffic to Changing Malls

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Brick-and-mortar versus e-commerce

Amid the popular belief that malls are dead, mall owners are silently but steadily transforming themselves to adapt. Traditionally, brick-and-mortar stores have been the foundation of retail sales. While e-commerce has been growing, it constitutes only 8.5% of total retail sales.

Consumers traditionally prefer to visit a store, examine goods and products, try on clothing and shoes, and buy their selections. Moreover, in the digital era, mall owners are also silently evolving with the help of digital innovations aiming to offer a true omnichannel experience to its visitors.

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Vacant spaces are used for non-retail uses

Mall owners such as General Growth Properties (GGP), Simon Property Group (SPG), DDR (DDR), and Kimco Realty (KIM) are redeveloping their vacant areas that were once occupied by anchor tenants. These mall owners are leasing their spaces to non-retail tenants such as sports and entertainment concepts, office space, medical facilities, and educational institutions.

Service-based industries such as beauty salons, gyms, offices, and medical practices drive consistent traffic, are neutral to competition from online retailers, and derive modest rent as well.

Although the consumer confidence index has improved in the US, the pattern of consumption has shifted away from apparel more toward healthcare, rent, household products, electronics, and cars. While retail behemoths leave the malls, their space is taken up by off-price and smaller retailers like T.J. Maxx, Abercrombie & Fitch, and Guess. These retailers tend to expand their store base aggressively across the country.

GGP’s redevelopment plans help boost revenues and drive traffic

General Growth Properties (GGP) has embarked on redevelopment activities worth $1.3 billion through March 31, 2017. Included in these activities are projects worth ~$0.7 billion that are under construction. The pipeline projects are worth $0.6 billion.

The company is preparing to expand the Staten Island Mall by adding ~235,000 square feet, of which 85% is pre-leased. GGP plans to open four new lifestyle and fitness centers at its malls. General Growth Properties plans to invest $300 million–$400 million annually for acquiring, redeveloping, and re-tenanting mall space that has been vacated by anchors.

GGP forms ~1.5% of the Vanguard REIT ETF (VNQ).

In the next article, we’ll see how interest rates affect shopping center landlords.

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