Malls across America face uncertain future as e-commerce, Covid-19 pandemic push many to the brink
By Ashley Fahey
Tampa Bay Business Journal
Published: Nov 17, 2021

Editor's Note: The American shopping mall — long an icon of the nation’s suburban expansion — has for years had to evolve amid changing consumer tastes. Covid-19 has only hastened the disruption by diverting foot traffic away from brick-and-mortar retailers and, to a degree that’s still an unknown, permanently altering the ways in which shoppers buy goods and services. This story is the first in a series from The Business Journals that looks at the state of current state of the American mall, the challenges and big debts the landlords face, and what's next.

Malls across America have for years been facing upheaval, uncertainty and, in the most dire circumstances, financial distress after years of mass stores closures with the onset and rapid growth of online shopping. The Covid-19 pandemic of the past 20 months has put even more stress on the behemoth retail properties, once a staple of American culture.

The most upscale malls, in the fastest-growing cities and submarkets of the country, are rebounding quicker and still hanging on after nearly two years of the Covid-19 pandemic.

For Class B and C properties, though — typically malls 20-plus years old, in small markets or ones comparatively underinvested-in to other malls in bigger metros — the picture is grim. B and C malls make up 30% of the roughly 1,000 U.S. mall properties in the U.S., according to a S&P Global analysis this summer.

The death of malls has been prophesied for years, as household names in retail such as Macy's, Sears and JCPenney began closing department stores by the hundreds throughout the 2010s. Those now-closed stores typically served as anchor tenants in malls. Since the pandemic, dozens of retailers have filed for bankruptcy, speeding up the rate of store closures. As of July, there were more than 700 anchor stores vacant across the U.S., according to Cushman & Wakefield PLC.

The departure of a mall anchor can set into motion a flurry of lease renegotiations and even tenant departures within the rest of the property. A typical mall lease includes a co-tenancy clause, which allows smaller tenants to renegotiate lease terms, particularly reduced rent, when one or more anchor tenants vacate a mall.

Add in a pandemic that's stymied foot traffic and in-person activities, and put online shopping into overdrive for more than a year, and the picture for malls that were already on the edge has darkened.

Billions in debt and local tax revenue hang in the balance, as many mall owners borrowed big to fund new amenities and dining options over the past decade. The arms race among mall owners helped inflate property values and placed many malls among the largest sources of tax revenue for their towns and cities.

Most malls haven't gone through a reappraisal since the pandemic. But an analysis by The Business Journals found, among mall properties that have been reappraised, several saw steep drops in value.