It's fair to say malls were struggling well before the coronavirus pandemic began. In fact, a 2017 report by Credit Suisse (NYSE: CS) predicted 25% of U.S. malls would shutter by 2022.
But then the pandemic hit, which has hurt malls even more. In the course of 2020, dozens of well-known retailers filed for bankruptcy, making plans to permanently close stores. Included in the mix are department stores, the loss of which is especially devastating to malls since these stores typically serve as anchor tenants, drawing in customers and smaller tenants as well.
At this stage of the game, operators of dying malls have some difficult choices to make. And one route they may want to take is repurposing that commercial space.
There are several options in this regard. Some malls may choose to become medical centers. Others may turn into warehouses and distribution centers. And some may sell their properties to companies seeking out new headquarters. Such is the case with one North Carolina mall, and it could spark a new trend.
How one mall is becoming an office
Epic Games, the creator of the popular Fortnite video game, has agreed to purchase the Cary Towne Center mall in Cary, North Carolina. The company is aiming to convert the 980,000-square-foot space into its headquarters -- a process that will likely take several years and probably won't be completed until 2024. For Epic Games, that's almost quadruple the size of its current headquarters that comprises just 250,000 square feet. But it's also a great way to capitalize on underutilized space.
Though many companies are making plans to keep their staff fully remote long term following the coronavirus pandemic, that setup doesn't work for everyone. Some employers are aiming to fill office buildings once again -- provided it's safe to do so.
And then there are those companies looking to expand their headquarters, like Epic Games. Given the number of dying malls in the country, those seeking more square footage should turn to these sluggish shopping hubs and see what deals they can broker with desperate mall operators.
The benefit of taking over malls is that they tend to be conveniently located. Many are easily accessible from major roads and have a stop on public transportation routes. That alone is a selling point for companies looking to expand.
Of course, mall operators and real estate investors get to benefit from these arrangements, too. Rather than let unused space go to waste, they can instead shift gears and repurpose it.
So far, Epic Games has yet to release details about its new headquarters, as the company is still in the planning stages. However, it has noted that it may consider including space the local community can use. Does that mean Cary residents will soon have a public space to congregate and enjoy free video game content? Not necessarily. But the fact that former mall patrons may still get to visit their own stomping grounds isn't a bad thing.