The Real Deal Miami

Shopping center redevelopment trend gains pace

E-commerce and other pressures force landlords to find different uses for retail space

November 29, 2015 09:00AM

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Denver developer John Frew demolished part of the Westdale Mall in Cedar Rapids, Iowa, to make way for a hotel and offices.

Denver developer John Frew demolished part of this mall in eastern Iowa to make way for offices and a hotel.

Owners are re-imagining and redeveloping shopping centers under pressure from increasing electronic commerce, a spate of retailer failures and a legacy of overbuilding.

For example, the Highland Mall was the first enclosed shopping complex in Austin, Texas, but now the owner is converting the 600,000-square-foot building into an Austin Community College campus complete with classrooms, laboratory space, and a culinary facility.

Austin has a growing population and a solid economy, but Highland Mall lacked sufficient traffic to remain a shopping center.

Some owners are transforming troubled malls to apartment complexes, offices and space for industrial users.

Others are converting large sections of their shopping centers into playgrounds and parks to sustain the interest and support of shoppers.

For example, Tony Ruggeri got rid of approximately 50,000 square feet of retail space at West Manchester Town Center in York, Pennsylvania, to create an open-air plaza. “You have to create an environment that people want to come to,” Ruggeri told the Wall Street Journal.

Real estate data gatherer CoStar Group Inc. reported 46.3 square feet of retail space per U.S. resident, below the record of 49.8 square feet recorded in 2009.

CoStar said 2015 is the sixth consecutive year that U.S. retail space per capita has declined, and predicted continuing declines through 2020.

The International Council of Shopping Centers reported that the declining inventory of retail space has affected all categories including strip centers, convenience stores, community shopping centers and major malls.

Suzanne Mulvee, a research director at CoStar, told the Journal: “The fact is that we built far too much.”

Compounding the oversupply of retail space are bankruptcies among major retailers. This year, RadioShack Corp., American Apparel Inc. and Wet Seal Inc. have filed for bankruptcy.

Government data show electronic commerce is increasing 15 percent annually as virtual retail centers compete harder with real ones. online shopping has increased its share of all sales to 7.4 percent in the third quarter, more than double the level of 3.6 percent in the third quarter of 2008.

Those are some of the forces behind a mall redevelopment in eastern Iowa, among others.

John Frew, a Denver developer, took over the troubled Westdale Mall in Cedar Rapids, Iowa, last year and demolished the main building of the mall this year. He plans a redevelopment of Westdale that would include offices and a hotel and would reduce the property’s retail space by about a third.

Frew told the Journal, “We think it fits the market.” [Wall Street Journal] — Mike Seemuth