Four hundred of the 2,000 largest shopping malls have closed; construction is halted on hi-rise construction projects; and no one knows what to do with the increasing number of vacant auto dealership lots.
Let’s take a look at each of those commercial real estate disasters starting with The Vanishing Shopping Mall.
Enclosed shopping centers, long the cathedrals of American consumerism, are closing their doors by the hundreds as the recession continues to clobber retail sales. Is America’s love affair with the mall over?
The vital signs are not good. Even before the recession hit, consumers had developed mall fatigue, and the classic enclosed shopping mall was in decline. More than 400 of the 2,000 largest malls in the U.S. have closed in the past two years. The last new major mall in the U.S. opened in 2006, and only one big mall is scheduled to open this year—the troubled Xanadu mega-mall in Rutherford, N.J. With some 150,000 retail stores projected to fail in the U.S. this year, more mall closings are imminent. Mall mainstays such as Mervyn’s department stores, Linens ’n Things, and KB Toys have already disappeared into bankruptcy, and mall vacancy rates topped 7 percent last year, the highest level since 2001. “It’s an absolute disaster,” says Howard Davidowitz, an investment banker specializing in retailers. “What a mall represents is discretionary spending, and discretionary spending is in a depression.”
Is it really that bleak?
The data suggests that it is. For decades, American consumers could always be counted on to spend more than they did the year before—the only question was, by how much. But in the past 12 months, retail sales in the U.S. have dropped an unprecedented 9.8 percent. The economic collapse has landed especially heavily on the old-line department stores, such as Sears and JCPenney, that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, to the distress of the smaller merchants that depend on the larger stores to feed them traffic. The Turfland Mall in Lexington, Ky., recently lost Dillard’s as an anchor tenant, setting off a cascade of closings. “We have no choice but to leave now