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The Future of Shopping Malls and Senior Living in America

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The Decline of American Shopping Malls

The American shopping mall, once a symbol of suburban consumerism and social gathering, is facing an uncertain future. In the 1980s, there were approximately 2,500 malls across the United States. Today, that number has dwindled to fewer than 1,000. This dramatic decline raises questions about the viability of malls in the modern retail landscape and whether they could disappear altogether.

The story of the Berkshire Mall in Wyomissing, Pennsylvania, serves as a microcosm of this larger trend. Michele Bare, the borough manager for Wyomissing, recalls the mall's glory days:

"The mall was built in the early seventies. It was in its heyday, especially at this time of the year, the time between Thanksgiving and Christmas. It was packed. Our police department would go out and assist with traffic control."

However, the current state of the Berkshire Mall paints a starkly different picture:

"Tenancy, I would say, is about 60%. So, I mean, just the visual of walking through it compared to even a decade ago when, again, at this time of the year you would be body-checking people trying to get from store to store versus as of today, I would say 60% to 70% of the parking lot is fenced off."

This decline is not unique to Wyomissing. Across the country, America's love affair with shopping malls has cooled significantly.

Factors Contributing to the Decline

Several factors have contributed to the decline of shopping malls in the United States:

  1. Oversupply of Retail Space: The US has long been oversupplied with retail space compared to other countries. Adrienne Yih, a retail analyst at Barclays, notes:

    "Pre-pandemic, or I should say, actually, pre-GFC. So, we had approximately 7 square feet of retail space per capita. You compare that to--in Europe, it's about $1.00--or one square foot to 1 1/2 square feet per capita. And then obviously in Asia, it's significantly lower than that."

  2. Changing Consumer Behavior: The way people shop and socialize has evolved, with more emphasis on online shopping and digital interactions.

  3. Rise of E-commerce: The rapid growth of online shopping has significantly impacted traditional brick-and-mortar retail. Yih explains the dramatic shift:

    "E-commerce as a percent of sales from 2010 to about 2015 was just hugging 10%, hugging, hugging 10, 10, and then from 17 to 19, it went from 10 to 30. It was that S-curve of adoption where all of a sudden, it was like, 'Oh.' Why? Because this generation demanded of Amazon and all these other things."

  4. Pandemic Impact: The COVID-19 pandemic accelerated these trends, with e-commerce reaching unprecedented levels:

    "In 2020, it went to 70, 30. Because you couldn't go to the stores. And then what happened is it sort of like kind of ratcheted down sort of in 2021 and 2022 and sort of is now kind of at a level playing field where it's kind of more like 40%, 45% e-commerce and it's heading to 50/50."

The Future of Malls: Adaptation and Repurposing

Despite these challenges, many industry experts believe that malls are not dying but evolving. Igal Namdar, whose company owns about 80 malls, sees opportunities in the right types of properties:

"We don't think they're dying, but the better malls have a place in the market and we think what's left-- We don't think they're all going to die. However, there are some that will probably die in the future."

Namdar's strategy focuses on investing in B or B+ malls, which offer a balance between potential returns and stability:

"Those are malls that they do well, but they're one level below the A. And there we feel that there's a arbitrage in the cap rates that you could buy them at much more attractive cap rates than the A, and maybe a little bit less than the Cs that we feel don't have much life left in them."

The key to survival for many malls lies in adaptation and repurposing. Namdar explains their approach:

"Now our main focus is to do joint venture with a developer and bring someone in and say let's go as a partner and we can repurpose it, whether it's a--for residential, for, you know, hospital, for, you know, industrial, hotel, mixed use, other types of retail, big boxes, you know, junior anchors."

This strategy of repurposing malls for alternative uses is becoming increasingly common across the industry. Some malls are being transformed into:

  • Residential complexes
  • Medical facilities
  • Office spaces
  • Mixed-use developments
  • Distribution centers for e-commerce

However, the process of repurposing is not always smooth. Local governments and mall owners often face challenges in agreeing on redevelopment plans and obtaining necessary approvals.

The Impact on Local Communities

The decline of shopping malls has significant implications for local communities, particularly in terms of tax revenue and employment. In Wyomissing, the Berkshire Mall's decline has had a substantial impact on the borough's finances:

"I believe the highest assessed value was in the mid-$50 million range. That coupled with mercantile tax, you were looking at probably anywhere between $400,000 to $700,000 in annual tax revenue. Compare that to the most recent reassessment that dropped it down to $5 million."

This dramatic decrease in tax revenue affects the borough's ability to provide essential services and maintain infrastructure. The loss of retail jobs also impacts local employment, particularly for entry-level and part-time workers who often find opportunities in mall-based businesses.

The Future Outlook

While the traditional shopping mall model may be in decline, there is optimism about the future of retail spaces. Adrienne Yih predicts a more balanced approach to retail:

"My view is that a 50/50 world is about right, because a 50/50 world will be about 500 stores. So, just, you know, kind of in that range."

This vision suggests a future where physical retail and e-commerce coexist, with brick-and-mortar stores focusing more on experience and brand engagement rather than pure transaction.

Igal Namdar remains optimistic about the long-term prospects of repurposed mall properties:

"It just takes a while, but our--really our intent is to work together with the towns and cities as much as we can, work together as a team to redevelop these assets into something that will hopefully be here for the next hundred-some-odd years."

The key to success will be adapting to the changing needs and preferences of consumers, creating spaces that serve multiple purposes and integrate seamlessly with digital retail experiences.

The Silver Tsunami: America's Growing Senior Population

As the retail landscape undergoes significant changes, another demographic shift is creating both challenges and opportunities in the housing market. The United States is facing what some experts call a "silver tsunami" - a dramatic increase in the senior population that will require substantial investment in senior living accommodations.

The Demographic Shift

The numbers are staggering:

  • The number of Americans over age 80 is projected to surge from 13 million today to over 32 million by 2050.
  • Within the growing population over 75, those with annual incomes over $100,000 are growing much faster than the rest.
  • The highest percentage of growth is coming from those with incomes over $200,000.

Tana Gall, president of Merrill Gardens, which owns and operates retirement communities across the United States, explains the significance of this demographic shift:

"Demographics are definitely in our favor. I got into this business just over 30 years ago, and we talked about then this silver tsunami that was coming. Well, I'm happy to say that I'm actually seeing it happen now. You know, within the next 5 to 10 years, that aging population is actually going to be moving into senior living."

The Demand for High-Quality Senior Living

As the population ages, there is a growing demand for senior living accommodations that go beyond basic care. Marilyn Bergstrom, an 87-year-old widow who recently moved into an upscale senior living development, represents this trend:

"We considered probably 4 different residence, and that was before COVID. And then we looked at Murano and loved Murano... I had thought years ago I wanted to live in a senior living community before I had to."

Merrill Gardens and similar companies are responding to this demand by providing a range of services and amenities:

  • Help with activities of daily living
  • Meals and housekeeping
  • Maintenance services
  • Social interaction opportunities
  • Wellness programs like tai chi and yoga

Tana Gall explains their approach:

"We define senior living as a place for people to go enhance their lives once they're past the age of 62 and they're ready to downsize, or they have some need that really keeps them from living in their own home and makes them want to move into senior living."

The Business of Senior Living

While the demand for high-quality senior living is growing, the business model presents both opportunities and challenges:

  1. Pricing and Affordability: High-end senior living facilities can be expensive. Marilyn Bergstrom pays about $7,500 a month for her accommodations, which she considers fair given the amenities and services provided.

  2. Margins and Profitability: Tana Gall describes senior living as a "middle-margin business," with recent challenges due to the pandemic:

    "Our margins were--have been a little more compressed of recent since the pandemic. The pandemic was really rough on our sector for sure."

  3. Staffing Challenges: Attracting and retaining qualified staff is a significant concern for the industry.

  4. Supply Constraints: Despite growing demand, there are significant challenges in developing new senior living facilities.

The Supply-Demand Imbalance

One of the most pressing issues in the senior living sector is the growing imbalance between supply and demand. Arick Morton, CEO of NIC MAP Vision, explains the situation:

"Senior housing is really facing a watershed moment as the baby boomers begin to turn 80. Senior housing construction has been outpaced by 80+ growth since 2022, and that gap is only set to continue as the boomers grow by about 40% by the end of the decade."

The reasons for this supply constraint include:

  1. Increased construction costs
  2. Rising interest rates
  3. Regulatory challenges

Morton estimates the potential shortfall:

"At the current pace, we're on track for about a $275 billion shortfall in senior housing development."

Investment Opportunities and Challenges

The growing demand for senior housing, coupled with supply constraints, presents significant investment opportunities. However, there are challenges in making projects financially viable:

"You're looking at construction costs that have gone up by 25% or 30%. Debt that used to be 3 or 4 is now, you know, 7 or 8. And so, when you put those two together, your cost of development has gone up pretty substantially."

Despite these challenges, Morton sees potential for investors who can identify the right markets and projects:

"We're really seeing people kind of sharpen their pencils and really go hunting for those areas that, you know, can work today, and the number of those areas that work are going to increase as demand explodes."

The Future of Senior Living

As the industry grapples with the challenges of meeting growing demand, several trends are likely to shape the future of senior living:

  1. Innovative Financing Models: New approaches to financing development and operations may emerge to address the capital needs of the industry.

  2. Technology Integration: Increased use of technology for health monitoring, social engagement, and operational efficiency.

  3. Mixed-Use Developments: Integration of senior living facilities into broader community developments to promote intergenerational interaction.

  4. Focus on Wellness and Active Aging: Continued emphasis on programs and amenities that promote healthy, active lifestyles for seniors.

  5. Workforce Development: Initiatives to attract and train the next generation of senior care professionals.

Tana Gall remains optimistic about the future of the industry:

"It matters. I get to make a difference in people's lives every day, and it's pretty significant. So, for me, it's like working with the team members. If I treat my team members great, I know they treat my residents great. And simultaneously, it's a business. We make money doing it. So, that's why I love it. That's why I think it's an industry that's going to be around a long, long time."

As America faces the silver tsunami, the senior living industry stands at a critical juncture. The ability to meet the growing demand for high-quality, affordable senior housing will be crucial in addressing one of the most significant demographic shifts in the nation's history.

Conclusion: Adapting to Change in Retail and Senior Living

The stories of America's shopping malls and the growing demand for senior living accommodations highlight the dynamic nature of the country's real estate and demographic landscapes. Both sectors face significant challenges but also present opportunities for innovation and growth.

In the retail sector, the future likely lies in a hybrid model that combines the best aspects of physical and digital shopping experiences. Successful malls will need to reinvent themselves as multi-use destinations that offer more than just shopping, incorporating entertainment, dining, residential, and even healthcare facilities.

For the senior living industry, the coming years will require substantial investment and creative solutions to meet the needs of a rapidly growing elderly population. The sector must balance the demand for high-quality, amenity-rich living environments with the need for affordability and accessibility.

In both cases, adaptability will be key. Developers, investors, and operators who can anticipate and respond to changing consumer preferences and demographic trends will be best positioned to succeed in these evolving markets. As America's population and consumer habits continue to change, the built environment must evolve to meet new needs and expectations, creating spaces that serve multiple purposes and enhance quality of life for people of all ages.

Article created from: https://youtu.be/K6PzCEqv8Vs?si=HXehgGGQBIueaCnL

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