For years, malls have been threatened by increasing store closures as retailers have focused on online sales or tried out stand-alone store options in shopping centers. But the coronavirus outbreak dealt an exceptionally hard blow to malls. Not only did many retailers file for bankruptcy and close stores in the course of the pandemic, but health fears kept many shoppers away from malls.
In fact, in 2020, a large number of consumers shifted to online shopping, and there's fear among real estate investors that if that trend continues, it could impact malls even more. But while malls may be coming away from a terrible year, things are finally starting to look up. And that's something mall REIT (real estate investment trust) investors should take comfort in.
At the height of the pandemic, 32% of consumers were scared to set foot in a mall. But that was well before vaccines were introduced into the mix.
Now that vaccines are widely available and much of the public has been inoculated, those fears are subsiding. Throw in the fact that many consumers just plain miss in-person shopping, and it's easy to see why more people are now returning to malls.
According to Placer.ai’s latest mall index, which encompasses 100 properties across the country, foot traffic in enclosed shopping malls in June was only eight percentage points below June 2019's levels. In fact, mall visits have been steadily increasing since February, when vaccination rates started to climb.
Outdoor malls are faring even better. In June, foot traffic was off only 5.6% from June 2019 levels. And in May, foot traffic at outdoor malls was nearly the same as it was during the same month in 2019. Placer.ai chalks that improvement up to Memorial Day sales and the fact that some indoor malls may have still been partially or even fully closed.
But all told, the numbers at malls are getting better. And that means that mall REITs may soon be better positioned to recover more of the value they lost when the pandemic's toll really took hold.
When will malls recover in full?
At this point, it's hard to say when foot traffic at malls will get back to pre-pandemic levels. The events of the past year forced even the technologically resistant to embrace e-commerce, and now those new habits may be difficult for some consumers to break. It's also worth noting that the 2019 back-to-school season was exceptionally successful for retailers, according to Placer.ai. As such, this year's numbers may lag, but that doesn't necessarily mean malls aren't headed in the right direction.
Of course, in the near term, it's fair to posit that outdoor shopping malls will recover sooner than enclosed, indoor malls, as they're a safer prospect in an age when the pandemic is by no means behind us. But either way, if foot traffic at malls continues to gain momentum, it could put investors in a much better spot come late 2021 than they were just a year prior.