The Future of the American B Mall (and Other Grades) Remains in Flux as Fortunes Diverge

The American mall experience has been something of a cultural touchstone since the opening of the first "contemporary, enclosed suburban shopping mall" experience in 1956, as Atlas Obscura recorded. The Southdale Shopping Center of Edina, Minnesota, would usher in the heyday of the American mall experience in the '70s, '80s, and '90s before the once-popular hangout and all-inclusive shopping experience that it represented began to show its age, falling somewhat out of favor.

Now, the fate of the American retail mall is in flux, according to Retail Dive. Those graded or classified as top-notch malls (achieving an A ranking) are performing well, while those in the lower B's, C's, and D's are headed toward total reformation or restructuring.

Rudolph Milian, president and CEO of retail consultant Woodcliff Realty Advisors, described the ranking system in an email to CoStar News.

Rankings are "based on a few factors such as tenant mix, location, trade area dominance, but the most important factor is average sales per square foot," he said.

But what fate awaits those high-performing B's, or B+ malls?

US Malls Rated A, B+ See Increased Rents and Occupancy, While C-Class Malls and Below Face Repurposing

Citing data from Green Street analysts, Retail Dive indicated that there was a stark divergence in terms of operational success concerning A malls, B+ malls, B malls, and those lagging behind.

A malls, for example, rose 2.4% to 5.5% (in terms of the aforementioned effective rents and occupancy) last year. B+ malls ticked upward more modestly, by 0.3% — but no other grade made the cut in terms of a positive trend.

B-graded malls tumbled by 2.5%, and B-minus-ranked malls fell by 5%. Even worse, C-class malls plummeted by 6.5% to 8%. Effectively, two very different futures lie in store for existing malls nationwide, and fortunes depend almost entirely on current classification and/or performance.

“The retail prospects for most malls graded ‘B-’ or below are generally dire; many will be repurposed with another real estate use over the next decade,” Green Street analysts indicated.

This is a story somewhat reinforced by a 2022 Modern Retail report, which suggested that some C-class malls were seeing vacancy rates as high as 30%.

Multiple suggestions were on offer as to how to revitalize these ailing shopping centers: adding experiential businesses that are trending, like ax throwing or pickleball; dividing vacant anchor stores into smaller footprints to allow for independent or small businesses or chains to take up tenancy; inviting service-based businesses such as gyms or dental clinics to open up shop; or finally, redeveloping them into residential or commercial real estate opportunities.

Both sources spoke to the deep investments necessary to revitalize a B-plus mall into a true A-class performer.

Sandy Jacobson, partner with real estate firm Allen Matkins, was cited by Modern Retail on the subject, suggesting that targeted investments after a deep case study on individual properties can lead to a new lease on life for certain shopping centers.

“A lot of times, they’re taking this opportunity to rehab their center, maybe making it from a C to B or a B to an A-, and get new tenants in there,” Matkins said, despite the capital expenditures such a rehabilitation may cost.

Meanwhile, Anjee Solanki — national director of retail services at Colliers — told Retail Dive that Simon Property Group (the largest owner of shopping malls in the United States) was participating in exactly this type of targeted investment behavior.

“Given the limited space availability in A Malls, landlords have a prime opportunity to elevate the leasing efforts in B Malls... landlords see value in strategic redevelopments rather than widespread overhauls” Solanki said.

However, cap rates at 13% to 17% for B malls, compared to 5.5% for top-tier A malls, per Solanki, "[indicates] higher risk and return expectations."

"With department store vacancies increasing and mall owners focusing on diversified revenue streams, the investment needed to reposition these assets is substantial," she added.

Upgrading a B+ Mall to an A Mall Is Possible, Experts Suggest

But what about the B+ mall, wedged between the top tier of American shopping centers seemingly destined for success and a massive cohort of so-called "dead" or dying malls that are nearly certain to be repurposed into sprawling real estate complexes — maybe with a small retail footprint, food court, and professional care offices if they're lucky?

"It is not difficult to turn a B+ mall into an A- mall through redevelopment, re-leasing, consumer marketing, etc.," Milian said.

"Simon, with its very powerful leasing resources, certainly has the ability to identify and attract highly productive retailers to replace underperforming retailers through lease expiration," Milian added.

Milian went on to indicate that a B+ mall store could also transition to an A-class mall simply by buying out underperforming or unwanted tenants, "[replacing] them with more productive tenants that will pay higher rents. Achieving better sales also pushes demand from the most desirable retailers. This alone can turn a B+ mall into a Class A- mall," he concluded.

Solanki also weighed in on the issue when pressed by CoStar News, writing in an email that each particular location demanded deep examination.

"Upgrading B malls can drive foot traffic, but success depends on strategic investment, tenant mix, and location," Solanki wrote.

"While experiential retail, mixed-use elements, and better merchandising can revitalize some properties, the costs are significant, and not all struggling malls will survive in their current form. With department stores continuing to decline, we’re seeing a shift toward grocery, off-price, and entertainment anchors, but e-commerce and consumer spending pressures remain challenges. Selective redevelopments that integrate residential, entertainment, and lifestyle components have the best chance of long-term success," she concluded.