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Shopping Malls vs. Strip Centers
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When many of us decide to go shopping we usually take a trip to our city’s enclosed mall or even the new “open-air” malls that are being built recently. What is becoming more apparent is that we do not pull up to the local strip mall. What is even more obvious is the number of vacant stores that are popping up in strip malls. Not only are these facts visible in the real world, they translate to the stock market.
Real-estate investment trusts that own strip shopping centers logged a weak total return of negative 1.6% last year, as measured by the Dow Jones Equity All REIT Index. That made strip centers the second-weakest performance of any REIT category in the DJ index. Regional malls sported gains of 60.6%, one of the strongest categories in the REIT index. Overall, the REIT index posted total returns of 28.5% in 2009.
The disparity between strip centers and regional malls reflects two key differences: the tenant mix and locations. Regional malls are the enclosed malls that have variety stores ranging from specialty stores like Bath & Body Works to giant department stores like Carsons or Dillards. Usually strip malls are anchored by grocery stores and retail stores like TJ Maxx. To attract those anchors, landlords often charge relatively low rents compared with other tenants in the center.
To compensate, the landlords often charged higher rents to mom-and-pop shops like nail salons, dry cleaners and eateries. But in the economic downturn, many mom-and-pop shops aren't generating enough sales to pay their rent, hence the reason why we see a lot of vacancies in strip malls. The vacancy rate of shopping centers, mostly strip malls, hit 10.6% in the fourth-quarter of 2009, an 18-year high, according to Reis Inc, a New York real-estate research firm. For regional malls, it was 8.8%.
Company and peers like Simon Property and CBL & Associates also boosted investor confidence after alleviating balance-sheet pressures by issuing large amounts of debt and equity this year. But strip centers, which have relatively smaller market capitalizations, don't have the balance sheet to supplement their business, like the big corporations do.
So what can the smaller businesses do to compete in this tough market? Knowing where they stand financially is the smartest thing they can do. How they would go about doing that is getting a
commercial appraisal. By getting an appraisal, owners develop an opinion of value of the property. The
appraiser gets the information from a wide variety of sources, including: commercial database vendors, tax assessor records, surveys, county courthouse records, interviews.
This process will guarantee the owner the information needed to make an educated decision on the property’s future. This information can help with expansion, downsizing, and selling the property.
Building appraisals can give the owner and the shareholders the information to properly conduct research to find optimal ways to increase profits.
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