Mall Owner Macerich Leverages ‘Historic’ Demand To Set Company Leasing Record

Article originally posted on CoStar on February 7, 2024

Macerich raked in a record number of leases last year, and with a potential pipeline worth more than $65 million of incremental rent, the national mall landlord said it isn’t expecting the retail boom to fizzle anytime soon.

The real estate investment trust signed more than 4.2 million square feet worth of deals across its national portfolio last year, a record high for the Santa Monica, California-based landlord in its decadeslong history. What’s more, that built upon the momentum it generated through 2022, already a historic leasing year for Macerich as it and other landlords across the United States capitalized on unprecedented demand among both retailers and shoppers emerging from the depths of the pandemic.

“People who say they don’t see growth in the mall sector are clearly ignoring the facts,” outgoing Macerich CEO Tom O’Hern told analysts on the company’s latest earnings call of the REIT’s “historic” year. “All you need to see is the number of new uses coming into malls that, quite frankly, we didn’t have 10 years ago,” he said, referring to dining and entertainment. “All of those new uses are driving traffic, sales, productivity and rents.”

Macerich’s portfolio occupancy climbed to 93.5% by year-end 2023, nearly in line with its pre-pandemic levels of about 94%, the company said.

Macerich signed more than 185 leases through the fourth quarter, resulting in an 18% spike in leased square footage compared to the same period in 2022. All told, the retail landlord’s leasing activity throughout last year was 12% higher than the amount it signed the prior year.

With 2022 and 2023 on the books as record years in terms of leasing volume, Doug Healey, the company’s executive vice president of leasing, said the more than 2.8 million square feet of new store openings it has waiting in the wings is a telling indicator of the health of the overall retail economy.

“While there is still some uncertainty in the macroeconomic environment, we’re seeing little pullback from retailers, and that’s a result of the very healthy retail environment today,” Healey said. “Most of the retailers that suffered through the pandemic didn’t make it, so the ones that did make it through are far healthier and stronger. Our watchlist is as low as it’s ever been in 20 years, and we’re not expecting anything unusual in 2024.”

The landlord’s ability to leverage its upper hand in the retail market is a product of that healthy dynamic, evidence of which is found in the rising demand for space, significant drop in bankruptcies and store closures, as well as strong consumer spending habits.

National demand for retail space climbed by more than 53 million square feet throughout 2023, marking the third consecutive year of tenants taking on more space than they let go, according to CoStar analysis. Since the beginning of 2020, retailers have collectively filled more than 175 million square feet of space.

While the days of big department store leases and widespread traditional apparel openings are in the rearview mirror, Macerich executives said the gap has been filled by a slew of incoming tenants driving foot traffic and spending across all of its properties. Consumers may be pulling back on some expenses as they contend with some economic concerns, but they are still willing to spend on dining and entertainment, a shift Healey said has bolstered leasing activity among new tenants.

“They provide a way for us to reimagine and differentiate our town centers from our competition,” he said of the more than 80 new brands that signed on for space in Macerich-owned properties last year. Those include Beyond Yoga, Level99, and Élephante, among others.

Macerich, the owner of more than 45 million square feet across 43 properties concentrated on the West Coast, around New York City and near Washington, D.C., is seen as a bellwether of real estate activity in the nation’s malls.

Its focus on high-end so-called lifestyle retail centers has positioned the landlord to capitalize on trends such as shoppers preferring open-air properties to indoor malls, and tenants hunting for space in affluent suburbs instead of urban hubs.

After a deluge of store closings, retail bankruptcies and operating restrictions in the years leading up to and throughout the pandemic, retail landlords such as Macerich are finally in a position to leverage strong consumer spending and shoppers’ eagerness to abandon their computer screens to visit stores in person.

The widespread return to brick-and-mortar shopping has meant a broad spectrum of retailers compete for a limited space, especially in high-demand properties. The national retail market reported its tightest vacancy rate on record, with roughly 4% of all retail space available for lease by the end of last year, according to CoStar data — far below the historical average of about 6.8%.

Earlier this week, Simon Property Group, the largest U.S. mall owner, boasted strong results in the fourth quarter and full 2023. Occupancy at its U.S. malls and premium outlets was 95.8% as of Dec. 31, compared to 94.9% at the end of 2022.