Internet Resistant Tenants are Breathing Life into Strip Malls

According to a report in The Wall Street Journal (June 28, 2017), “there are roughly 1,200 malls in the U.S., and some analysts see the figure bottoming out at 500 to 800… But other categories of retail are flourishing. The number of neighborhood shopping centers and strip centers has jumped by 2,303 since 2010 to 114,683.”What have strip malls got that shopping malls don’t? Answer: The ability to offer what consumers are looking for day-to-day—convenience and experience.

Retail Sales by the Numbers

E-commerce has taken a bite out of brick-and-mortar retail sales. The Department of Commerce issued a report last November estimating U.S. retail e-commerce sales for the third quarter of 2017 at $115.3 billion, an increase of 3.6 percent (±0.7%) from the second quarter of 2017.

The third quarter 2017 e-commerce estimate increased 15.5 percent (±1.1%) from the third quarter of 2016 while total retail sales increased 4.3 percent (±0.4%) in the same period. E-commerce sales in the third quarter of 2017 accounted for 9.1 percent of total sales.

While the upswing in online buying is not expected to abate anytime soon, there are certain things the Internet cannot provide. And that is where the strip mall has found a niche.

Internet Resistant Tenants

Today’s successful strip mall combines Internet resistant retailers with service-oriented tenants. Alongside a grocery store anchor, there may be a nail salon, dry cleaner, quick service restaurant and boutique fitness center—all services that do not compete with e-commerce. Together, such uses offer a harmonious blend that attracts consumers who live in the area.

“What’s in high demand are services and experiences that can’t be replicated online,” says Linda Zimmerman, Senior Vice President in the Retail Division at Henry S. Miller. “People are eating out more and want to be entertained.  Strip centers can easily supply the restaurants, smart phone stores, medical needs and more of their neighborhoods.”

Just What the Doctor Ordered

A new addition to strip malls that is becoming more and more common is medical facilities. Physicians, dental professionals and healthcare systems are moving out of hospitals or medical office buildings and into retail centers. This is in response to consumer demand for convenience and savings as insurance plan deductibles rise.

There are already urgent care clinics, physical therapy centers and medical imaging facilities next door to neighborhood coffee shops. Some experts foresee other medical services showing up soon in strip malls as well. Look for endoscopy and colonoscopy clinics, childbirth centers and possibly even outpatient knee and hip replacement facilities.

Let Us Entertain You

Another increasingly popular tenant for strip mall owners are family entertainment centers. These draw customers from the local community and, therefore, seek locations near residential areas. They are affordable—the average bill is between $8 and $14 per person—and offer families with children a place to play and eat. Attractions at these centers range from laser tag and video games to indoor mini-rides.

Strip Malls are Here to Stay

Convenience has always been the reason behind the development of strip malls and other neighborhood retail centers. What have changed are consumer needs and tastes. So while appliance or small clothing stores may be getting few and far between because of the Internet, strip malls will be around offering food, fun, fitness and the next consumer craze on the horizon.

 

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.