Adaptation is Key for Mall Owners

NEW YORK CITY—For the leading owners in the retail sector, 2014 has been upbeat thus far. The five mall REITs rated by Barclays Capital—Simon Property Group, GGP, Pennsylvania Real Estate Investment Trust, Macerich Co. and CBL & Associates—are up an average of 14.5% year to date, compared to 14.1% for the MSCI US REIT Index. Occupancy is high at nearly 95% and, following a rough winter, sales have been trending upward. For these landlords, the ability to replace underperforming tenants is greater, as is their pricing power.

That being said, Barclays continues to rate the sector as “neutral,” and reports this week from a variety of sources cite both challenges and opportunities for shopping center landlords. In its latest National Retail Review, for example, Cassidy Turley notes the “surprising performance” of power centers despite the plans of many big-box chains to shrink footprints, store counts or both. The reason for this strength boils down to one word, says Cassidy Turley: adaptation. Barclays notes that omni-channel initiatives being implemented by the most successful retailers are being facilitated by landlords that offer same-day delivery “while getting the real estate benefit,” especially in class A malls.