According to a new report from commercial real estate company CBRE, the solution to the troubles faced by malls across the U.S. is simple: change their merchandise mix. The change, like most bold fixes, is far easier said than done, CBRE said.

The report says that the two categories occupying the most space in U.S. malls — department stores at 48.7 percent of gross leasable area, and apparel, accessories and shoes at 29.4 percent — also posted relatively tepid retail sales growth from 2011 to 2016.

In contrast, categories with stronger retail sales growth still account for relatively little occupancy of U.S. malls. That includes restaurants at only 4.6 percent of gross leasable area, sporting goods at 3.1 percent, home furnishings at 1.6 percent and health and personal care stores at 1.2 percent. 

“The American mall itself isn’t anywhere close to dead; It’s the old mall model that is dying,” said Melina Cordero, CBRE Americas head of retail research. “Converting malls’ tenant bases to include more of the categories that in-person shoppers now favor won’t be an easy or quick fix. But it is a necessary evolution for the mall industry to maintain its place as a cornerstone of American retail.”

One challenge for mall owners is that most retailer leases in malls span 10 or more years and those pacts are challenging to revise or terminate early without the retailer’s consent. Another is that department store chains often hold veto power over any significant changes proposed for their space or, in some cases, the mall in general. However, in both cases, struggling retailers are becoming more amenable to efforts to reposition the malls that house them.

One metric of mall-industry performance provides a sense that this strategy can work. Super-regional malls, which tend to be the largest malls serving wide geographies, have diverse tenant rosters on average, with significant restaurant and entertainment options. Those super-regional malls have generated stronger growth in net operating income than their smaller, regional peers in recent years.

Russ Harris, a senior vice president in the Salt Lake City office of CBRE, said, “We have already seen the owners of several local malls invest capital into re-tenanting and redeveloping their properties to create experience-based shopping centers. This is currently underway at the Gateway in downtown Salt Lake City, Provo Towne Centre and the Shops at South Town in Sandy. Substantial investments are underway to transform these malls into more dynamic centers with broad mixes of shopping, dining and entertainment options.”

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