Shopping malls aren’t dropping

HACKENSACK, N.J. — It’s still a mall world, after all.

That was the message from some 35,000 developers, retail real estate brokers and shopping statisticians who gathered in Las Vegas this week for the 47th annual convention of the International Council of Shopping Centers.

A year-end surge in retail sales, low interest rates and “easy money” for construction projects made 2003 a good year for the shopping center industry. The consensus in Vegas was that predictions of the mall’s demise appear to be premature.

Large enclosed regional malls, with more than 1 million square feet of store space, saw sales grow faster than their smaller counterparts in 2003, according to one research report presented at the convention.

Attendance at the convention, which draws dealmakers from around the world, was up roughly 15 percent over last year, a sign the industry is in a growth mode, according to ISCS spokeswoman Patrice Duker.

“It tells the world the industry has recovered from the last couple of years, when developers were being a little bit conservative. Now, they’re expanding and positioning themselves to move on projects,” she said.

Indeed, just a few years ago, some were predicting malls and department stores would become retail dinosaurs as shoppers abandoned them for online shopping or standalone discount stores.

But developers at the convention, which ended Wednesday, were making deals for stores and shopping centers that will open in 2006 and 2007, indicating the industry is confident about the long-term strength of the retail economy. “They’re gearing up to have a good couple of years, and they’re ready to go,” Duker said.

The National Research Bureau, a research firm that maintains an annual shopping center database, reports that 140 million square feet of new shopping center space is in the construction pipeline. “We’re really seeing a real spurt in growth now” after slow growth over the past decade, said NRB President Nancy Veatch.

Some of the growth will occur as older, enclosed malls are remodeled or even razed completely and replaced with open air centers, or “lifestyle centers” that combine living and office space with retail stores, Veatch said. But the large enclosed megamalls are still thriving, for the most part, according to the NRB. Malls of more than 1 million square feet rang up a 4.93 percent sales increase over 2002.

“On the question of whether the mall is an endangered species, just look at the people who are investing in them. They certainly don’t think they’re dead,” Veatch said.

Investment money is flowing into real estate investment trusts as investors are becoming increasingly bullish on the benefits of owning a piece of a mall or shopping center.

“Last year, retail real estate generated an average return of 17.3 percent, with an average dividend of 8.5 percent,” said Charles Grossman, portfolio manager for investment firm ING Clarion Partners, who participated in an ICSC panel on the market outlook for retail investment.

Grossman and other panelists said REITS appeal to individual investors who don’t want the volatility of the stock market and want the income produced by dividends.

While “this really is the best of times for this industry,” with strong sales and low interest rates, there are some worries on the horizon, according to Michael Niemira, chief economist and director of research for the ICSC. Those include gas and food price increases, interest rate hikes and inflation. He noted that while gas hikes are adding $7 to $10 a week to the average household budget, they are offset by earnings increases. Average weekly earnings rose by $13 over the past year, Niemira said.