The Shopping Center Chronicles – An Introduction
Those in their fifties or older probably remember going downtown to shop, not just for big ticket items, but for everyday items people now get at big-box stores. Suburban shopping malls simply didn’t exist.
During the 1950s and early 1960s, the concept of enclosed shopping malls caught on. From 1950 to 1982, shopping centers went from 0% to 55.2% of all non-automotive retail sales in the United States. Post-World War II suburbanization, higher economic growth, and mass ownership of automobiles all led to an explosion of shopping malls.
Today, there’s a mall in just about every neighborhood, borough, and town, while downtown retailers seem to dwindle by the day. Retail’s exodus from downtown areas isn’t hard to figure out from an economic perspective. Newer and different types of stores have appeared since the advent of shopping malls, most notably the big-box or superstores, such as Wal-Mart, Target, and Home Depot. Yet this type of store has not replaced the shopping mall concept. Rather, it represents another type of retail shopping and does not threaten the extinction of shopping malls.
From the beginning, the watchword for shopping center research was internalizing externalities. That is what shopping centers did and what downtown retail districts could not do. These are demand externalities of mall customers, and everything, including lease structure, space allocation, store location, etc., are shaped by them. How they’re put together becomes beneficial for all involved because mall traffic is used optimally. If they’re not put together successfully, there’s lost revenue and profit. In a shopping center, the market can now make use of these externalities.
It’s been known for some time that certain commercial ventures are worth much more than the value of the real estate where they’re located. Restaurants, hotels, and motels are a perfect example of what appraisers call extra value business enterprise value. Shopping centers are a natural addition to commercial real estate containing business enterprise value. Separating off business enterprise value as different from real estate value means much lower property taxes for shopping center owners.
Over the next several weeks, we’ll dive into numerous important topics related to shopping centers, including the structure of shopping center leases, rents, space allocation in malls, agency problems with contracting, store location, spatial autocorrelation, non-anchor stores; juxtaposition, and business enterprise value. This series is designed to give you a better perspective on shopping centers as potential investments, so make sure to follow along with The Shopping Mall Chronicles via our blog.
