U.S. mall owners see glimmer of hope amid gloom

Mall landlords, besieged for the past two years by the rise of online shopping, are trying to push a new narrative of improving sales and increased demand for empty space at their properties.

Second-quarter earnings results for the biggest owners were largely in line with expectations, according to D J Busch, an analyst at Green Street Advisors, a research firm that specializes in real estate investment trusts. And that’s good news for an industry that’s struggling to stay relevant.

“We are pleasantly surprised — boring is pretty good in retail,” Busch said. “Incrementally, we’re moving in the right direction, but it’s going to take several quarters to get back to speed and get some of these centers leased backed up.”

U.S. mall REITs have been beaten up as the growth of e-commerce and a surge in retailer bankruptcies and store closures upend their business model. In the past 24 months, a Bloomberg index of eight regional-mall owners plunged 25 percent, compared with a 3.3 percent decline for all REITs. After a brutal 2017, landlords are trying to paint a rosier picture and convince investors that the worst is behind them.

“Demand from tenants for space in our highly productive centers is increasing,” David Simon, chief executive officer of Simon Property Group, the largest U.S. mall owner, said on a call with analysts last week.

The strong economy is helping prop up sales numbers, according to Busch. Simon’s sales per square foot, a key metric for mall owners, increased 4.6 percent from a year earlier to $646. For Santa Monica, California-based Macerich Co., sales per square foot rose 7.1 percent to $692.

Not everybody is as sanguine. The backdrop for mall landlords remains challenging. The effects of the Toys “R” Us collapse are still filtering through, and troubled retailers continue to go bust.