Chattanooga-based shopping center operator CBL Properties is stepping up the redevelopment of its huge expanse of retail space as the company helps redefine the American mall.
"Our strategy has evolved," says CBL Chief Executive Officer Stephen Lebovitz. "Redevelopment is our primary growth strategy."
Among the national findings of a new report by real estate researcher Reis Inc.:
* Vacancy rates at malls were 8.6 percent in the second quarter
* Open-air shopping center vacancies grew in the second quarter in 55 of 77 metros studied
* About 3.8 million square feet of retail space in neighborhood and community malls emptied from April to June, pushing the vacancy rate for this type of mall to 10.2 percent
* Some well-located malls which attract more affluent shoppers are seeing tenant demand and rent growth. Mall rents grew 0.3 percent in the second quarter despite rising vacancies.
Across the country, the vacancy rate at all malls hit 8.6 percent in the second quarter, up from 8.4 percent in the first quarter, according to real estate research firm Reis Inc. Bricks-and-mortar stores continue to feel the pinch of online shopping as buyers make more purchases with computer clicks instead of their feet.
Vacancies in open-air shopping centers grew in the last quarter in 55 of the 77 metro areas studied by the Reis firm.
CBL's portfolio totals 73.4 million square feet across 26 states, including 75 enclosed, outlet and open-air retail centers and 11 properties managed for third parties, making it one of the biggest operators in the country. Its portfolio includes Hamilton Place and Northgate malls in Chattanooga.
Lebovitz says it is transitioning its properties into the best mix of retail, office, restaurant, fitness and other uses. Even residential and self-storage uses are eyed as shopping centers are remade, he says.
Michael Lebovitz, the brother of the CEO and recently elevated as CBL's president, says redevelopment is "tricky," requiring work with existing tenants and new users as well as going through the required municipal approvals in each market.
"There's a lot of opportunities in our portfolio," says Michael Lebovitz.
According to the Reis report, strip malls and other neighborhood and community shopping centers suffered their worst quarter in nine years this spring. About 3.8 million square feet of space was emptied from April to June, pushing the vacancy rate for this type of mall to 10.2 percent, Reis said.
Because of shopping and housing trends, another Chattanooga developer is refashioning its massive Hixson mixed-use project.
Hillocks Farm, located on a 190-acre wooded tract on Highway 153, is shifting its original design to add single-family homes for the first time and limiting some of the retail portion of the $100 million project, says Duane Horton, a Chattanooga builder overseeing the development.
Horton says new plans are to cut the size of the retail part of the original design and mix planned offices into that component, freeing up acreage in the rear of the development for the homes.
While the site is zoned for up to 500,000 square feet of retail space, new plans call for 350,000 square feet, he says.
"We're working the corporate office space into the [retail]," Horton says. "That allows us to meet the demand for single-family housing."
In terms of the retail piece of the project, Horton says he's hopeful that announcements are coming soon.
According to Reis, some well-located malls which attract more affluent shoppers are seeing tenant demand and rent growth. For example, mall rents grew 0.3 percent in the second quarter despite rising vacancies.
CBL CEO Lebovitz says it's looking at more hotels to go outside its malls.
"Each market is different," he says. "We don't have a standardized approach."
Also, some e-commerce retailers are moving toward having physical presences, which shopping center operators see as an opportunity.
A recent U.S. Supreme Court decision over online taxes is seen as a positive by CBL officials as they say the ruling levels the playing field between internet and bricks-and-mortar businesses. The court ruled that states are allowed to compel retailers to collect taxes from out-of-state online sales.
"It's a real victory," said Michael Lebovitz about the ruling.
At the same time, bankruptcies by well-known retailers recently has created vacant space in malls and other shopping centers. Toys R Us and Bon Ton Stores are recent examples.
Contact staff writer Mike Pare at firstname.lastname@example.org or 423-757-6318. Follow him on Twitter @MikePareTFP.