The future of Class B malls may be tied into the growing trend of repurposing underperforming malls into mixed-use developments as new retail construction slows. These redeveloped properties blend retail, lifestyle, entertainment and essential services to meet the evolving needs of today’s consumers, according to a Cushman & Wakefield report.
There are 250 Class B malls in the United States, comprising about 28% of the total across the country, according to real estate analytics firm Green Street. They are typically located in suburban and secondary markets and frequently feature a mid-tier tenant mix of national and regional retailers within an enclosed format.
These properties continue to lag Class A malls, which are approaching pre-2019 traffic levels. While Class A's are only 4% below pre-2019 levels, Class B's have foot traffic down 9% and lower occupancy of about 89% compared with 95% at Class A malls. Occupancy at C-rated malls is below 72%.
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The Class B category faces a variety of challenges in today’s market, including lower sales per square foot due to smaller-scale national tenants and reduced foot traffic. Also, the demographics and competition have shifted to newer, more accessible shopping centers.
In addition, many Class B malls have outdated designs and experience increased vacancies as tenants mix shift and anchor stores leave. Finally, these properties face growing competition from e-commerce and newer lifestyle centers that offer a more dynamic mix of retail, dining and entertainment, according to Cushman & Wakefield.
Still, Class B malls offer a compelling opportunity for adaptive reuse as they are often priced below their original value.
“Reimagining these spaces not only allows investors and developers to achieve significant returns, but also fosters positive economic growth in local communities,” said Cushman & Wakefield. “For retailers, these revitalized spaces offer the chance to thrive in environments with increasing foot traffic and elevated customer engagement.”
Redevelopment ideas include densification and mixed-use developments that incorporate residential components, office spaces and hospitality services; experiential retail hubs that attract younger visitors and re-enage shoppers; healthcare and community spaces that meet the daily needs of consumers; last-mile distribution and data centers that support e-commerce; repurposing anchor spaces into fitness centers and indoor sports complexes; opening spaces, adding green areas and creating outdoor-facing stores.
Cushman & Wakefield is tracking more than 50 mall redevelopment projects across the country that range from minor renovations to multi-billion-dollar overhauls. One is Hawthorn, a premier two-story super-regional shopping center in Vernon Hills, Illinois, that is undergoing a significant transformation. Hawthorn is evolving into a vibrant mixed-use community, integrating luxury residential, expanded retail and dining, and pedestrian-friendly spaces, said the report.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
