Online Retail Sales Drive Nail in Suburban CRE Coffin

The recession only sped up what mall owners in suburban areas had been experiencing for some time: brick-and-mortar retailers large and small going bankrupt and shutting down, scaling back, or closing stores and offering their products mostly online.

Commercial real estate optimists say that these empty malls should be turned into mixed-use developments that mesh luxury condos with boutiques, coffee shops, and restaurants. But some experts predict that the best-case scenario is that former malls in suburbia will have a non-retail use, such as community college campuses.

That’s because developments filled with shops and condos need a population with high per-capita income and high population density. If a community has both of those things, its malls probably aren’t failing in the first place, say industry experts, who note that the U.S. is already overbuilt with retail properties. Meanwhile, U.S. retail vacancy rates continue to decline. Retail vacancy in the top 54 U.S. markets was 7.3 percent in the first quarter of 2012, down from a high of 7.9 percent in the first quarter of 2010, according to real-estate research company CoStar Group. Retail space now amounts to 50.2 square feet per capita in the top 54 U.S. markets, CoStar says.

In addition to mixed-use projects requiring a much higher population density and household income than typically are found in the markets surrounding a failed mall, they’re also highly expensive, at a time when local municipalities, who often must provide some type of financial assistance, may not be able to foot the bill.

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