As vaccination rates have risen and COVID-19 case counts have fallen in the U.S., consumer spending has surged. This has included a sharp rebound in mall traffic and sales, much to the surprise of skeptics who expected the pandemic to finish off the U.S. mall industry.
The budding recovery has allowed mall giant Macerich (NYSE:MAC) to start making progress on filling its anchor vacancies once again. That, in turn, will help the company maintain its malls as vibrant shopping destinations that can be successful for many years to come.
Anchor vacancies increase during the pandemic
Even during the depths of the pandemic, some retailers continued expanding. At Vintage Faire Mall in Modesto, California, Macerich brought in Furniture City to replace a three-story, large-format Forever 21 that closed in late 2019. It also relocated Dick’s Sporting Goods from an outparcel to a larger space where it anchors one end of the mall.
Nevertheless, anchor stores closed faster than Macerich could replace them last year. For example, Nordstrom decided to trim its store count during the pandemic. This included closing stores at three Macerich properties: Chandler Fashion Center, FlatIron Crossing, and Freehold Raceway Mall.
Bankruptcies caused most of the closures. For example, J.C. Penney shuttered its stores at Kings Plaza and Green Acres Mall after declaring bankruptcy. Neiman Marcus closed its store at Broadway Plaza under similar circumstances. Lord & Taylor went out of business, closing stores at Danbury Fair Mall and Freehold Raceway Mall. Discount retailer Century 21 also went out of business, exiting anchor locations at Green Acres Mall and Fashion District Philadelphia.
These anchor store closures piled on top of a significant number of vacancies that existed before the pandemic, primarily attributable to Sears’ epic collapse. That left several Macerich malls with multiple anchor vacancies: a particularly dangerous situation that can spark a downward spiral.
Quickly addressing vacancies
Macerich has moved quickly to start backfilling its anchor vacancies. Early this year, it signed a lease with Shoppers World — another discount department store — to replace Century 21 at Fashion District Philadelphia. That store opened just last week. Shoppers World has reportedly agreed to take over the former Century 21 space at Green Acres Mall, too.
Last month, Macerich announced two more leases with Primark. One will replace the former J.C. Penney at Green Acres Mall, while the other will serve as a new junior anchor at Tysons Corner Center. The mall REIT also signed a lease to bring a massive SCHEELS experiential sporting goods store to Chandler Fashion Center in the former Nordstrom space.
These recent deals will complement anchor replacement work that started before the pandemic. As of early 2020, Macerich had tenants lined up for four former Sears stores. It has mostly completed two of those redevelopments already, while a third will wrap up later this year.
Macerich has numerous anchor leases in the pipeline, too. First, it is close to finalizing a new lease for the former J.C. Penney store at Kings Plaza Shopping Center. The REIT also has three new leases for Round One family entertainment centers in the pipeline, along with an additional Industrious co-working location and a third Life Time Fitness athletic club.
Setting the stage for recovery
Macerich still has plenty of work left to recover from the COVID-19 pandemic. Several key properties have elevated vacancy rates, and the REIT still has over a dozen empty anchor spots that it needs to address within the next few years.
However, with consumers flocking back to its malls and leasing activity rebounding, Macerich is on the right track. Once the REIT completes its anchor redevelopments, many of its malls could achieve even stronger traffic and sales than they had a few years ago. That would boost tenants’ interest in operating stores at Macerich malls, allowing it to start raising rents again and driving long-term revenue and earnings growth.
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