Though store closures were a problem before the coronavirus pandemic began, over the past 11 months, dozens of popular retailers have filed for bankruptcy or made plans to shutter locations all over the country. That's problematic for malls (and their commercial landlords), which are facing a major vacancy crisis as a result.
In fact, Moody's Analytics (NYSE: MCO) reports the rate of mall vacancies reached a record high of 9.8% in September 2020, up from a previous peak of 9.3% in 2011. And so one mall operator decided to get creative and put some of its unoccupied space to good use -- by turning it into a charter school.
Could classrooms soon take over malls?
Brookfield Properties (NYSE: BPYU) is repurposing a 70,000-square-foot former Sears (OTCMKTS: SHLDQ) location in Idaho Falls so it can be used as a charter school in fall 2021. A portion of the mall's parking lot will also be converted to an outdoor play area for students. The Alturas International Academy will register close to 600 learners in total, and access points will be closed off so mall shoppers won't be able to simply barge in while classes are in session.
Converting empty mall space into classrooms makes sense on a number of levels. For one thing, department stores are increasingly closing down or opting for off-mall locations. But that's problematic, because these stores often serve as mall anchors, taking up multiple floors of space and serving as a consistent source of rental revenue. Department stores also draw in customers and other tenants, so losing them is a harsh blow for malls in an age when filling that space has become increasingly difficult.
At the same time, many school districts are overcrowded. While that's clearly problematic during a time when social distancing is the key to staying safe, it's an issue during normal times as well. Cramming too many students into the same school buildings can negatively impact academic performance.
Turning empty mall space into classrooms solves both problems: It gives malls a way to capitalize on vacant spots, and schools have the option to expand. Furthermore, because malls tend to be conveniently located -- often, they're accessible from highways or other main roads -- they're a reasonable location for schools. And parking, which is often limited at schools, is generally abundant at malls.
As such, while classrooms aren't rapidly taking over malls just yet, as stores continue to close, we may see more instances where former retailer locations are replaced with desks, cubbies, and chalkboards. The reality is that malls will need to get creative to thrive in the wake of the retail apocalypse, and housing schools and learning centers is a good way to do so.
Of course, classrooms are only one option for malls with vacancies on their hands. Some malls are increasingly welcoming medical offices and turning empty space into micro fulfillment centers. Including schools in that mix is another way for malls to diversify, and in the coming years, that could be the key to their survival.