spot_img
Wednesday, February 21, 2024

Creative approaches are required to sustain once-dynamic regional malls

When Pat Anderson entered the mall industry in the early 1990s, the business strategy was all “Field of Dreams” — build it and they will come. The industry boasted 2,500 malls throughout the country, and crowds galore.

“When I got into it, it was a development phase,” says Anderson, now senior general manager at The Streets at Southpoint mall in Durham. “And everybody operated a certain way.”

But the 21st century has not been kind to malls and their owners. The COVID-19 pandemic, the ease of online shopping and changing consumer habits are forcing mall owners across the country to find new ways to keep attracting people to their locations.

The Streets at Southpoint owner Brookfield Properties recently won approval from the Durham City Council for a hotel, office space and apartments to be built around the perimeter of the mall, with construction likely to take place over the next decade. “It’s just a great challenge, and you have to move to the future,” Anderson says. “I think we’re in a position now to move forward and make that happen.”

He’s not alone among North Carolina mall operators. At Hanes Mall in Winston-Salem, Truliant Federal Credit Union recently occupied the former Macy’s space. The owner of Cary’s South Hills Malls and Plaza wants to add as many as 1,750 apartment units and office space.

In Chapel Hill, construction has begun to overhaul University Place, built in the 1970s, to include a 253-unit apartment complex, including a swimming pool, in an existing parking lot. A nearby grocery store has been demolished to make room for street-side retail and office space.

“It’s a big trend throughout not only Carolina but the country,” says Chuck McShane, director of market analytics in the Carolinas for CoStar Group, which tracks commercial real estate trends. “The development models of malls have shifted to become much more experiential and much more focused on high-touch premium products or discounted products. The days of going to a mall for a full Saturday and spending your whole time there are gone. That’s where you’re seeing more malls to look to add housing, for the convenience factor.”

The decline of the great American mall growth has been happening for more than a decade. When COVID-19 hit, Coresight Research predicted about 25% of the country’s 1,000 malls would close in the next three to five years. Now, about 700 enclosed malls remain.

“During COVID, [the pressure on mall owners] accelerated tremendously because people were spending more time at home,” says McShane. “And retail spaces near homes filled up pretty rapidly. So developers are trying to leverage that by locating housing close to malls.”

Department store chain Dayton’s opened the first enclosed shopping mall in a Minneapolis suburb in 1956 as a way for consumers to browse without having to face harsh weather.  (Dayton’s morphed into present-day Target.) Two-story malls arrived in the 1970s, many soon adding movie theaters and food courts. Many were built in the suburbs, drawing shoppers away from downtown retail areas.

Construction at University Place has begun. When completed, the mall will include apartments, a hotel, and a main street.

By 2001, however, malls were struggling because of overbuilding and the rise of Amazon.com. The Streets at Southpoint, which opened in 2002, contributed to the closing of South Square Mall in Durham, built in 1975, after Belk and JCPenney relocated to the new mall. (South Square was razed, and the site now houses a Target and a Sam’s Club.) The last regional mall to be built in North Carolina was Northlake Mall in Charlotte, which Taubman Centers opened in 2005.

Retail vacancy rates have shifted since that time. In 2006, the overall retail vacancy rate in North Carolina was 5.6%, but in malls, it was just 2.5%, according to CoStar Group. Last year, the overall vacancy retail rate for the state had declined to 3.1%, but the mall vacancy rate increased to 7%.

“While 7% might not seem high, there are fully occupied malls, and then those that are struggling with 20-25%-plus vacancies,” says McShane. “It’s a bifurcated market. And many closed malls have been converted to other uses over the years, which has decreased total mall inventory.”

Ram Realty, which is based in Palm Beach Gardens, Florida, acquired what was called University Mall in Chapel Hill in 2018. Built in 1973, the renamed University Place had already lost its two department stores,  Dillard’s and Belk, and was anchored by A Southern Season, a local food and cooking retailer. The main attraction for many locals was a Burlington Shoe Factory and a GameStop, both now long gone.

“We had some ideas to redevelop it and turn it into a more lifestyle center,” says Jeff Kurtz, Ram’s vice president of development.

After three years of design work and permitting approvals, Ram Realty began construction in October 2022 on a 253-unit apartment complex in the parking lot. The first floor will include about 9,000 square feet of retail space, primarily for local retailers. Construction should be completed by late 2024.

On the other side of the mall, Ram plans to create a street with about 30,000 square feet of ground-floor shops on both sides with space for movie nights, musical acts and community events. “We view that as the heart of the new University Place,” says Kurtz. “People want to walk around and be outside.” The mall is about 2 miles from downtown Chapel Hill and UNC Chapel Hill.

Ram Realty also has approval to build a 150-room hotel at University Place. All told, it plans to spend about $160 million.

“A lot of malls in their current form are obsolete,” says Kurtz. “It’s just not the way people are shopping these days. When we bought it, we envisioned something more interactive. We did see an opportunity to change the mall to be more in line with shopping habits. They prefer outdoor spaces. They want restaurants.”

SilverSpot Cinema and a Planet Fitness — located where a Rose’s once sold discount goods — have outside entrances that attract visitors, along with the Bartaco and Hawkers restaurants. On a Friday night, both usually have a waiting list for tables, and cornhole sets outside Bartaco keep the patrons busy while they wait for seats.

Truliant goes shopping

CBL Properties is taking a different strategy at Hanes Mall in Winston-Salem, one of the 94 sites  that the Chattanooga-based real estate company owns in 22 states. The mall opened in 1975 and was the state’s largest enclosed mall for decades. In 2018, Novant Health acquired the old Sears location. After Macy’s closed, Truliant Federal Credit Union spent $8 million for an operations hub, which has about 250 full-time employees. The space can accommodate as many as 550 workers, and opened in January. The company headquarters is across the street.

The employees have access to the mall and its food court, says Chad Frye, Truliant’s senior vice president of facilities. The space is more collaborative than its main office, allowing for more conversations.

Frye calls the operations center employees who work at Hanes Mall the “walking wallets.”

“The mall needs consistent shoppers, and Truliant is providing them,” says Frye. “There definitely is an ease of access to shopping and eating and the ability to walk around the mall from a well-being and exercise standpoint.”

Hanes Mall added a Dave & Buster’s restaurant in 2019 and high-end sneaker retailer Swish in late 2021. The mall, says CBL Vice President Stacey Keating, returned to pre-pandemic levels of sales and traffic by the end of 2021. “Even though sales have cooled some because of broader economic uncertainty, we’ve continued to enjoy traffic and sales that are above pre-pandemic levels.”

Truliant Federal Credit Union moved its operations center into the old Macy’s location at Hanes Mall in Winston-Salem. The employees give the mall “walking wallets.”

Raleigh-based Loden Properties and partner Northpond Partners of Chicago bought Cary’s South Hills Mall Plaza for nearly $40 million in 2021. The key attraction was the location of Cary’s oldest mall at the intersection of U.S. 1 and Interstate 40. “South Hills sits at one of the prominent intersections in the state,” says Henry Ward, a Loden partner. “It was a community mall that was cutting-edge in its time. In its current form, it had become functionally obsolete.”

Loden filed plans with the town earlier this year to redevelop close to 50 acres. Almost all of South Hills will be torn down and is likely to be replaced by what Ward says mirrors a Dutch style called “woonerf,” or livable street. “We are overlaying an urban street grid into a very suburban location,” he says, “that will get a grid of streets to feel like a mini downtown.”

The owner of South Hills Mall in Cary wants to redevelop it into small streets with retailers, restaurants and office space.

Imagine ground floors with retail shops, including the popular Grand Asia Market and the Baker’s Dozen Donut Shop. Above the retail will be offices and housing – the plans include up to 935,000 square feet of office space and 235,000 square feet of research lab space, as well as 350 hotel rooms. Loden is also working with Cary to include its proposed sports complex in the development. An old car dealership on the property could be renovated into “something creative,” says Ward.

The construction won’t begin until after the rezoning is approved, which will likely take about a year. Ward says South Hills will be a decade-long project in three or four phases and will cost in the hundreds of millions of dollars. He’s interested in attracting restaurants and bars, along with an area for shoppers to have lunch, work out and entertain their children.

“There are different reasons why people shop” today, says Ward. “At its core, it’s not always because people need a thing….The reason people shop now fulfills a lot of different needs, and one of them is entertainment.”

Not every owner is looking at adding housing, restaurants and entertainment. Northgate Mall in north Durham closed in 2020, and its current owners are attempting to turn it into a life sciences office complex. Duke University bought the Macy’s wing in 2017 for office space and a medical clinic.

In January 2021, video game maker Epic Games bought Cary Town Center, which had opened in 1979, for $95 million, and the mall closed. It was demolished last year, but plans to build a headquarters for Epic, along with some retail space, have stalled.

The picture is mixed at Charlotte-area malls, says McShane. SouthPark and Concord Mills, both owned by Simon Property Group, are the two best performers.

But Northlake, a two-story, 1.1 million-square-foot mall in the northern part of the county, went into receivership in 2021 after its owners failed to pay its debt. Three shootings at the center preceded Apple’s decision to close its store, which many area residents called the mall’s major draw. Syracuse, New York-based Spinoso Real Estate Group operates the mall, which is expected to be sold next year.

Dick’s Sporting Goods left Northlake in 2021 and moved to Concord Mills, which is primarily an outlet center that benefits from its proximity to Charlotte Motor Speedway and a Great
Wolf Lodge.

Initially developed by the Belk and Ivey department store families in 1970, SouthPark has nearly 1.89 million square feet and is visited by more than 12 million shoppers annually. It has upscale retailers such as Gucci and Saint Laurent, which have their only locations in North Carolina there. The adjacent Symphony Park hosts concerts, and The Residence at SouthPark apartments are located above retail. In 2022, Simon made upgrades to the mall’s West Plaza, adding Suffolk Punch Brewing, a new play area, green space and a stage for small performances. In 2024, the mall plans to add more restaurants.

“SouthPark has a lot of premium brands, and it’s become much more of a destination,” says McShane, “where people will come in and spend a weekend shopping.”

Back in Durham at The Streets at Southpoint, Anderson is gearing up for expansion. Urban Retail Properties opened it in 2002 as a hybrid with both an enclosed mall and an outdoor pedestrian wing. The front entrance – where Macy’s, Nordstrom and Belk are located – will remain the same. Along Interstate 40 and the mall’s back side, plans include 300,000 square feet of office space, more than 1,300 apartments and a 200-room hotel. Anderson predicts a five- to 10-year timeframe for Southpoint, now owned by New York-based Brookfield Properties.

“We’re a successful center, but we look five to 10 years down the road, and we want to make sure we maintain a destination,” says Anderson, noting that 71% of Southpoint’s shoppers come from outside Durham County. “We have a great thing, and we want to keep it that way.”

 

Chris Roush
Chris Roush
Chris Roush is executive editor of Business North Carolina. He can be reached at croush@businessnc.com.

Related Articles

TRENDING NOW

Newsletters