The American mall’s swan song is reaching a crescendo

Silence may be the name of the world’s hardest rock-climbing sport route – but it’s also what’s increasingly being heard while taking a visit to one’s local mall. According to a newly published WSJ report, malls are in a “death spiral” and significantly losing value across the board.

This didn’t exactly come out of nowhere

Much like America towards political polarization, things have been trending this way for a while.

Malls were initially envisioned as community gathering centers, where people could come together socially and do some shopping at the same time. The strategy became to anchor these locations with department stores, which drove foot traffic and spending. By 1975, there were more than 30,000 malls across the country, collectively accounting for over 50% of all retail sales.

The good mall times continued to roll through the ‘90s and into the 2000s. But then online shopping started to grow in popularity, throwing an Amazon-sized wrench into the way things were.

Monthly revenue for malls started decreasing in 2010 – and then in 2019, shopping malls across the US hit a 20-year low in sales.

Central to this revenue drop was the decline of many large department stores like Macy’s, Bon-Ton, JCPenney, and Sears – the central draw of many mall locations. The preceding companies shuttered a combined ~875 department stores between 2018 and the end of 2020, compared with 175 in 2016 and 2017.

Overall, less department stores in malls led to decreased foot traffic and spending (the “death spiral”). These factors combined to have a negative impact on property values. And Covid didn’t exactly help, except to exacerbate the existing downward trend.

• Woodbridge Center, a 1.1 million-square-foot mall in central New Jersey, was appraised at $86 million earlier this year, a 76% drop from its last pre-pandemic appraisal in 2014.
• Muncie Mall in Indiana, which was valued at $73 million nine years ago, is currently worth about $6 million according to an appraisal done in March.
• Crystal Mall in Connecticut was valued at $153 million by an appraiser as recently as 2012. The property was sold at auction in June for around $9.5 million.

👀 Looking ahead… More mall closures are on the horizon. Over $14 billion of loans backed by these types of properties come due in the next 12 months. And about one-fifth of all malls financed through commercial mortgage-backed securities are underwater, meaning the properties are worth less than the loans they back, according to data reported by the WSJ.

As traditional malls continue to go away, we could see many channel Mystique and morph into something else entirely – like schools, manufacturing plants, or warehouses.