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CHICAGO-Regional malls have survived the threats posed by mail-order businesses, big-box retailers and vendors relying on the Internet, says Indianapolis-based Simon Property Group chief executive officer David Simon. Add the US economy’s most recent recession to that list, the boss of the world’s largest retail REIT adds at a recent Banc of America Securities investment conference.

“Retail real estate can overcome retailers’ ebbs and flows,” Simon says. “I think malls continue to be a very important place where people shop and congregate…It’s really where retailers want to be going forward.”

Retailers setting up shop in Simon Property Group’s 186-million-sf portfolio have been willing to pay higher rents while sales have been relatively flat. New leases in the first six months of 2002 were written at $39.59 per sf, up 23% from the rate a year before. Meanwhile, sales are up less than 2%, to $390 per sf.

The retail world, at least Simon Property Group’s, also survived the wave of bankruptcies that struck retailers such as Kmart and Montgomery Ward, with 4.4 million sf affected nationwide.

“Despite that turmoil, we were able to increase occupancy in 2001 and 2002,” Simon says. Occupancy stood at 91.5% at mid-year, Simon reports, up more than a full percentage point over the previous year.

Of Simon Property Group’s top 10 tenants in 1993, six have gone through Chapter 11 or exited the business, Simon notes, making way for a new set of tenants who have filled the vacated space.

“This statistic is very telling. It tells us retailers are constantly changing,” Simon says. “If there’s a constant in our business, it’s that retailers change.”

Simon suggests, however, that department stores will need to change to meet customers’ needs. And although security has been stepped up at higher-profile malls in the wake of the Sept. 11, 2001 terrorist attacks, Simon says mall tenants and customers have little to fear.

“I personally don’t think the mall will be targeted for terrorist activity,” Simon says. “It’s nothing I lose sleep over at night—that a mall will be blown up.”

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