WASHINGTON, DC-Though recession may not be in the immediate future, the nation’s malls will be operating in overdrive to maintain their competitive edges. The economic slowdown will bring consolidations of some major department stores and a third of the country’s regional malls will take on new functions, according to comments from six key industry figures at the Dec. 7 conference of the National Association of Real Estate Trusts.

While economists note that retail spending is declining, recession is not the likely outcome, says Morgan Stanley Dean Witter & Co. analyst Matt Ostrower. Historically, this type of decline has affected REIT returns for malls. But malls are not likely to feel the pinch this early in the game. Department stores, however, are a different story.

“Over the past several years specialty stores are picking up market share at a faster rate than the discount sector,” says Rick Sokolov, president and COO, Simon Property Group. “Department stores have had a flat to declining market share. We have been encouraged about this Christmas in that department stores seem more focused on market share and are more promotional earlier in the season. That could have an impact on their margins.”

The department story industry is in a bit of upheaval now with five companies having new CEOs, says Anthony Deering, chairman and CEO of the Rouse Co. Nordstrom’s is going through a complete change and strategy and trying to play catch-up with its competitors.

“In five to 10 years, you’ll see five national chains,” he says. “Consolidation will continue and in most major metropolitan areas, Americans will see a percentage of regional malls go to a different use.”

Fewer new malls will be constructed during this slowdown, says Sokolov. Maintaining market share is the key to survival in this economy.

“The new development pipeline is not a macro issue in terms of supply and demand,” he says. “It’s a ferocious fight for market share. You’re going to see redevelopment programs, remodeling and re-tenanting programs. Those efforts will have some impact on overall returns on the market.”

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