Why Macy’s And Other Brands Are Moving Into Strip Malls

U. s. adults make about 1.

3 billion visits to shopping centers each month, or about 62 trips per person annually. While some outlets, like malls, have struggled to retain shoppers, foot traffic to strip malls is booming. Annual visits to strip malls surged 18% in 2023 compared with prior to the pandemic.

Convenient shopping options, hybrid work and millennials moving to fast growing suburbs are driving that trend, and retailers are trying to get a slice of the action. Macy's is trying to adapt to the changing retail environment, moving out of shopping malls and into suburban strip centers. Macy's announced in 2023 it was opening 30 new small format stores in off mall locations.

Brands like Sephora and Starbucks are also moving in, as are fast food restaurants making strip malls one of the hottest plays in commercial real estate. But strip malls face criticism for being an eyesore to their communities, contributing to environmental problems and blamed for the demise of traditional business districts. When we think of strip centers, we kind of think of older, dilapidated strip malls that are lining the buildings in urban areas.

I wrote a book about shopping malls, and I mostly focused on indoor shopping malls because they're honestly much more interesting architecturally. People have deeper feelings of nostalgia for indoor malls because they have more sense of place and presence. I don't think that people have a lot of sentiment about strip malls because they're very utilitarian.

The U. S. has more than 68,000 strip malls from coast to coast, more than regional malls, super regional malls, neighborhood centers, and outlet malls combined.

So how did the U. S. become bathed in strip centers, and could the format be the future of brick and mortar retail?

A strip mall in general occupies a 10,000 to 50,000 square foot property of connected buildings dominated by a large parking lot, with roughly five spaces for every 1000 square feet of retail space, usually located parallel to a major road or on a corner. They are also visible to thousands of potential shoppers who drive by each day. Most properties are one story tall and have fewer than ten tenants that have traditionally included a mix of niche retailers like nail salons, liquor stores and laundromats.

With consumers seeking more convenient shopping options, visits to strip malls have surged. The strip centers offer more of an in and out experience, so lines are shorter because of smaller stores. Parking is easier.

They're usually, you know, on your way home from dropping your kid off at school or on your way home from work. Their growing popularity is also due in part to stores offering goods and services you can't get online. We see these health services urgent cares, for example, going into these strip centers, UPS, Fedex with people ordering online.

You see a lot of those in these strip centers where people just want a quick in and out return. You're also seeing a lot of specialized fitness studios. The tenants in a strip mall within a neighborhood tend to be e-commerce proof, relatively recession proof, remote work proof.

And they provide inexpensive retail space for brands facing dwindling traffic. Macy's has opened roughly a dozen off mall stores called Market by Macy's and Bloomies as the retailer pivots to fast growing suburbs. The new stores are about a fifth of the size of traditional stores and offer a slimmed down selection.

While Macy's shares have underperformed the S&P 500, overall sales of its off mall stores have outperformed the rest of the company. Macy's said in February it was closing about 150, or a third of its legacy stores. New consumers younger consumers are not necessarily as inclined towards the fortress Mall experience as their parents may have been.

They're local. They're easy to get to. The format is simple to shop.

They're not doing this with the expectation that they're going to make a tremendous amount of new sales here, but it's a convenient place for consumers to pick up, to return, to touch and feel certain items, even if they order them and they're delivered the next day to their house. The trend has other retailers clamoring for space, too. Strip mall vacancy rates plunged to their lowest levels in decades, significantly below other property types, including both regional malls and neighborhood centers, which occupy up to 25 acres.

Other brands exiting the mall in favor of outdoor properties include Bath and Body Works and Foot Locker. Strip malls got their start in the 1920s, but it was decades later when the format took off. 1950s is when the strip mall really came into fashion, its suburbanization of this country.

So we have the automobile now available for the masses. We have Inexpensive construction processes materials for small single family homes. We have the highway.

The areas along the highways were pretty low cost real estate initially because they weren't good places to build homes, but people hadn't really figured out what to do with them yet. So to build these like very simple, often concrete block structures, one story structures for strip malls was a cheap way to give space that was highly rentable to stores. But today, rising costs and higher interest rates have put constraints on new strip mall construction, leading to higher rents for businesses.

The average rent at strip centers in 2024 reached $20. 95 per square foot, more than 17% higher than in 2019. Rising rates have given strip malls the title The King of Retail real estate.

Investors are taking notice. Site centers, which owns and manages open air shopping centers and high income suburbs, is spinning off its portfolio of strip mall Properties. The new company, called Curbline Properties, went public on October 2024.

Strip malls are also an attractive investment for commercial property owners because they are cheaper to purchase than large anchored retail shopping centers, and the landlord generally has less upfront costs. Even if you buy an existing anchor shopping center, the large national 50,000 square foot store isn't going to move into a space exactly as is, and that cost is often on landlords to outfit the space for the 60,000 square foot Walmart or Target. If you invest in a strip center, typically you'll have these precut boxes, and you'll attract tenants that are essentially going to be ready to move into the space.

As is. Most strip mall properties can be acquired for less than $5 million. Leases also typically have built in rent increases, and some have what's called a percentage rent provision, where, in addition to the minimum rent, a tenant pays a small percentage of their sales, roughly 3 to 5% goes to the property owner as additional rents.

So as a tenant, this may be attractive because your landlord has a financial interest in keeping the surrounding area occupied clean, maintained, attractive so that more customers are attracted to their tenant stores. The tenant demand is there, the consumer demand is there. And when you look at a lot of other investment opportunities within commercial real estate, there's a lot of question marks.

While strip malls offer shoppers a convenient option to pick up last minute items and find services, they aren't a perfect fit for everyone. It discriminated those that didn't have an automobile. Yes, there might have been a bus route, but for many that have taken busses, busses in the United States have never been that great.

On top of that, strip malls face environmental concerns. They're set in front of a parking lot that also tends not to be landscaped on a road that is also asphalt, so you get a very large heat island effect from strip mall development. A lot of times since they were built so cheaply, they were built on cheap land, and frequently that land can be in a bottom or a wetland.

And so you'll see a lot of puddles in their parking lots after a big rain, because there's actually groundwater seeping up from below, as well as rainwater from above, and it has nowhere to drain if everything is asphalted. But new investments could see many strip malls rehabilitated, with some converted into multi-use spaces. One survey found consumers in three Pacific Northwest cities said they were willing to pay 8.

8% more for goods and services in Well-landscaped strip malls, versus one without greenery. The survey was mailed to 1200 households. Strip malls could also be used to solve some of the nation's housing shortages.

Converting just 10% of the US's 947 million square feet of strip mall space could create 700,000 new multi-family homes. The strip mall that I see as being successful now, and even more so into the future, is set up more like a small community, a small town in a lot of ways, where you may even have stores at the ground level and an apartment on a second or third level. More green space, more walkways, pedestrian only areas, places for outdoor dining.

But while strip malls become the future of brick and mortar retail, some think it has a bright future. We need what we need when we need it. And strip malls offer that convenience to pop in and out and get those kind of services that you can't order online.

The apocalypse never came for retail. We recognize that. It just was a constant evolution and it's about getting the tenants right.

And now there is a new formula for getting that right.