Malls across the United States are feeling the pressure to open as a number of states and municipalities have announced measures encouraging businesses to restart operations.
Simon Property Group, the largest operators of shopping malls and outlets in the US, has reopened 77 out of its 209 properties, more than a third of its portfolio, in 38 states after national closures in late March due to the novel coronavirus pandemic. Simon plans to open “approximately half” of its U.S. portfolio within the next week, CEO David Simon said during the company’s first quarter conference call yesterday.
Macerich, another large owner of malls, has also re-opened 13 of its 52 US properties in Texas, Colorado, Missouri, Iowa, Indiana and Arizona. During a conference call today, the company’s CEO Thomas O’Hern said he expects “almost all of our centers and most of our tenants to be open” by mid-June.
There are serious financial motivations behind these re-openings, even with ongoing health and safety concerns about how quickly Covid-19 can spread among crowds and enclosed spaces. A new report from CBRE, the US commercial real estate services and investment firm, said rent payments in the retail sector for the month of April were as low as 10% for some malls. Shopping centers anchored by grocery stores fared better, but still only produced 55% to 80% of their normal rent payments. These payments also came in late, sometimes near the end of the month. In states that have partially reopened for business, CBRE said that May payments “in the month’s first six days were better than expected”.
Even with e-commerce options, retailers have also seen sales decline 8.7% for the month of March, the largest recorded drop according to data collected by the US Census Bureau. The estimate for total monthly sales for the retail trade and food services industry fell to $483 billion, the same as 2017, effectively erasing three years of growth.
Some retailers prioritized the retention of sales and management staff over making rental payments. ”That was extremely important to them because when it came time to re-open, they do not want to go out and hire and train, so they did everything they could to maintain those employees,” said Doug Healey, Macerich’s senior executive vice president of strategic leasing during today’s conference call with investors.
The executives of Simon and Macerich said the main challenges to re-opening properties include “haphazard” differences in rules between different municipalities and states; limitations on customer capacity, including in restaurants and food courts, due to social distancing guidelines; as well as large inventories due to reduced operations.
“Re-openings will be very promotional,” said Healey. “We are getting calls almost daily by retailers who want additional space. They may want to put a second store in one of our centers to sell inventory or they may want to put a store in a center they’re not in just to move inventory but that’s going to be a big part of the reopening plan.”