By JACK WEATHERLY
Credit Suisse predicted earlier this month that up to 25 percent of U.S. malls will be closed within five years. The Switzerland-based financial services giant’s outlook sent ripples across the world of malls, which have dominated the retail landscape for several decades.
Credit Suisse and other observers see an overbuilt market, not unlike the housing market of a decade ago.
Northpark Mall on County Line Road has been a local poster child for a troubled retail center for the past few years, as it has lost a number of prestige tenants to new malls, such as the Renaissance at Colony Park in Ridgeland and Dogwood Festival in Flowood.
Built in 1984, it last underwent a major renovation in 1998. It was sold in September by Simon Properties, the nation’s largest mall operator, to El Segundo, Calif.-based Pacific Retail Partners.
The new owners said at the time of the sale that they would develop plans to reinvigorate the 958,000-square-foot regional mall.
Pacific Retail expects to release its plans within the next 30 days, said Najla Kayyem, executive vice president of marketing.
“The conceptual plans that I’ve seen, we’re really excited about [them],” Kayyem said. “We think that the community will be very happy and thrilled.”
As for the gloomy Credit Suisse outlook, she said, “My philosophy in general is that good real estate doesn’t go out of style. We’ve got to constantly invest and reinvest in our assets . . . and have a reason to be a part of the community.”
Kayyem said Pacific Retail has done one survey at Northpark and will probably do a followup in about six months.
Jan Kniffen, chief executive of J. Rogers Kniffen Worldwide Enterprises LLC, an equity research and financial consulting firm for the retail sector, made a prediction similar to Credit Suisse’s a year ago.
Of the current number of malls ranging from 1,000 to 1,200, roughly 400 will be either closed or “restructured” by 2030, Kniffen said in an interview with the Mississippi Business Journal on Monday.
As malls continue to lose sales to the Internet, many will turn to lower-rent tenants as retailers downsize to deal with the onslaught. Otherwise, those malls won’t be able to pay the debt incurred when things were going better, Kniffen said.
By 2030, Kniffen foresees “the biggest debt writedown since the 2008 crash in the housing market. It will be much smaller, but it will be big.” The United States has twice as many retail square feet per capita than the next country, Great Britain, Kniffen said.
Malls’ prevalence in retailing grew until Internet sales started in 1999, Kniffen said. Mall foot traffic is falling by 6 percent to 8 percent per year, Kniffen said.
Kniffen said that while the number of malls is greater than ever, “replacements” are not on the horizon.
The good news for the surviving malls, including the restructured ones, is that they will get a shot at a larger piece of the retail pie, Kniffen said.
The top surviving malls will be able to divide up what he projects as 50 percent the retail market that will be left after online giant Amazon and others devour more and more of the business, Kniffen said.
“What everyone wants to do is make their shopping malls more experiential. You want to put things in that can’t be done on the Internet” ranging from hair salons, to restaurants to “skydiving tubes.”
“The CEO of a major REIT [real estate investment trust] said to me one day: ‘Jan, when we built these centers, we had to put in a place for people to rest and we put in food courts. Now we build all this stuff for them to do and hope they’ll buy something on the way out.’
“He was only half-kidding.”