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The 'Death Spiral' of Malls

By Eric S. Chafetz

It's impossible not to notice the vacancies when walking into a shopping mall in the United States. The New York Times recently reported that 15% of malls are 10%-40% vacant — up from 5% with that range of vacancy a decade ago. However, in comparison, in 2006, 94% of malls had a vacancy rate of 10%. In addition, 3.4% (or approximately 30 million square feet) are more than 40% empty. Taking all of this into account, Green Street Advisors, a firm that tracks the performance of the mall industry, recently said that the increased number of mall vacancies signals the onset of the “death spiral” of malls in the United States.

One of the main causes of this trend has been the bankruptcies, and subsequent liquidations, of many retailers that were household names (Circuit City, Linens & Things, Radio Shack, Borders, etc.) and often a mall's anchor tenants. Some retailers have reorganized around a handful of stronger stores or focused on online operations, but those are exceptions to the rule that the majority of retail bankruptcies since 2005 have resulted in complete liquidations.

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