“Everybody come and play/ Throw every last care away/ Let’s go to the maaaall, today!” – Robin Sparkles, “How I Met Your Mother”
Readers of a certain age will remember a time when the local mall was the epicenter of not just local retail commerce, but youth social life. If a teen wanted something to do, the usual option was to call a few friends, head to the mall, and see who else was there – and it didn’t matter if the teens in question had no intention of buying anything (or even the funds to do so).
For today’s note we will be limiting our discussion to fully enclosed, climate-controlled, indoor malls, differentiating them from open-air malls such as strip malls and outlet malls. The introduction of the fully enclosed shopping mall was a watershed moment in American culture. First introduced in 1956 in the suburbs of Minneapolis, the prevalence of malls grew alongside the burgeoning suburban lifestyle of post-war U.S. By the 1980s, malls had become solidly entrenched in American culture, as yours truly can attest. For those of us who were little kids at the time, the mall was even where your parents took you to meet Santa. In the next decade, a few malls even became tourist attractions in their own right – with some hopping on a plane just to – for instance – ride the roller coaster at Minnesota’s Mall of America.
In the 2000s, changing shopping habits had left the department stores that typically anchor malls less able to attract foot traffic. This diluted foot traffic combined with the growing popularity of e-commerce to further decimate the smaller stores that fill in the gaps in malls, leaving a growing number of storefronts empty.
In that weakened state, the COVID pandemic hit. The lockdown forced the already-eroding number of American mall customers to stay home. When the country re-opened, many of those customers didn’t bother coming back. During a Saturday-afternoon visit about a year after the pandemic lockdown ended, the once-bustling mall of my childhood and adolescent years was largely empty, with plenty of shuttered storefronts. Retail employees quite obviously outnumbered the customers and visitors. It wasn’t difficult to see why the prognosticators were declaring that malls were a soon-to-be extinct species.
And yet something’s changed since then. Rumors of the demise of malls were, as the saying goes, somewhat exaggerated. In fact, GrowthFactor.ai, a retail- and mall-designer consultancy, reported in December that foot traffic grew 9.7% last year, with visitors averaging 45-60 minutes per visit. That’s still not back to pre-pandemic levels, but the gap is narrowing.
In fact, some malls are doing quite well. Malls were once a reflection of American life – and they still are. We’ve written about the K-shaped economy in other publications, and this is reflected in the business of malls. High-end malls are doing more than just okay. As John O’Connor, head of acquisitions & development at O’Connor Capital Partners told the Financial Times, “The good malls are doing better than ever. The bad malls are more challenged than ever.”
Similar to the widening wealth disparity in the U.S., the top 100 (out of roughly 900) malls in the U.S. account for half of malls’ aggregate asset value. The bottom 350 account for 10%, according to Green Street mall research. (As many might recall, the top 10% of households by net worth control 67% of U.S. household wealth. The bottom third accounts for just 2%.)
Malls are not all created equal. Back in the 1990s, Green Street started categorizing them into four categories from Class A to Class D, based on sales per square foot, tenant quality, and vacancy rates. This categorization scheme has since become the industry standard.
Class A malls can boast annual sales of $700-$1,000 per square foot – in rare cases as high as $1,500/square foot, generally due to the presence of prestigious luxury or national-class tenants and locations in prime, affluent towns and neighborhoods (defined as areas in which annual household incomes typically exceed $200,000.) Their occupancy rates are often in excess of 95%. Prospects continue to look good for Class A malls. Cushman & Wakefield data suggest that in 2025, their asking rents (per square foot) rose roughly 20%, even as occupancy rates rose – now averaging around 96%. Retailers and brands increasingly view Class A malls as instrumental in helping them target the coveted fork of the K-shaped economy.
At the other end, Class D malls generate annual sales of just $200 (or less) per square foot and are in regions or towns where annual household incomes typically top out at $40,000. Class D malls have significantly higher vacancy rates, often 40% or more. Class D malls are struggling: they are generally seen as at high risk of default and likely to be demolished for other uses.
Yet it’s not just the lowest-grade malls that are struggling. In fact, the current industry debate focuses on whether even Class B malls are doomed. After all, only Class A and Class B+ malls recorded any kind of occupancy growth in 2025. Malls rated Class B or lower have significantly lower occupancy, with Class C and D malls collectively averaging around 84%.
So what does this mean going forward?
Even for owners/operators of Class A malls, however, it’s not an easy, straightforward path forward. Evolution will be required. The most obvious example: the traditional mall business model, in which large department stores served as anchors on the various ends of the mall, drawing in foot traffic that helped feed the remora-like smaller retail stores in the middle, is likely on its way out.
We’ve written in the past about the pressures facing department stores. To adapt, many are responding by rethinking their real estate – cutting down their traditional multifloor, “modern bazaar” stores and incorporating smaller, more specialized outlets into their store portfolios. That means mall owners will need to work a little harder and get a little more creative about what goes into the anchor spaces once occupied by the likes of Macy’s M 1.82% .
That’s not necessarily a bad thing. The retail business has always been somewhat ephemeral anyway: Eli Simon, chief operating officer of the major mall operator Simon Property, noted that the REIT’s top 10 mall tenants at the time of the company’s 1993 IPO have been decimated, with just two still in business. “That’s not ‘two of the 10 are still our tenants today,’” he stressed. “It’s ‘two of the 10 still exist.'”
For mall operators, the exodus of tenants, even large ones, offers opportunities to not just charge higher rent to new tenants, but also add a sense of freshness and change to a mall that might otherwise start feeling stale. It also means opportunities to target the more-valuable younger demographic.
Of late, mall operators have found that this sort of outside-the-box thinking can actually yield better results as measured by foot traffic. Entertainment centers that unite arcade games, go-karts, and casual dining in one place have proven popular as they move into anchor spaces. So too have certain hot restaurant chains like the hybrid food hall/gourmet marketplace Eataly, the robot-powered Gen Korean BBQ, and the Taiwanese foodie-favorite dumpling chain Din Tai Fung. A number of former department-store mall spaces now play host to charter schools, four-star hotels, and high-end gyms wellness centers.
Netflix NFLX 2.22% is looking into this trend, experimenting with Netflix House at two locations – Dallas and greater Philadelphia. The streaming giant has moved into former department-store spaces, opening Netflix Houses that lean on Netflix hit series (Stranger Things, Wednesday, Squid Game, etc.) to offer themed experiences like escape rooms, mini-amusement parks, augmented-reality/immersive zones, restaurants and bars, and of course, theaters to host live events and viewings. While the experiment is in its early stages, some speculate that it might be a secondary (or tertiary) reason behind the company’s ongoing (as of this writing) bid for Warner Bros. Discovery. This would allow for Netflix Houses themed around the likes of Harry Potter and DC Comics heroes.
Others such as Macerich MAC 2.68% and Welltower Inc. WELL 0.09% are experimenting with turning the spaces into multi-unit residences, including senior-living homes. The thinking here is that senior residents provide a “built-in” floor for foot traffic as they go mall-walking, gathering at coffee shops and restaurants nearly every day – all while saving the residents from the need to drive or brave the elements to get their exercise and social interaction. Aligned with the aging Boomer demographic, healthcare companies are also experimenting with basing senior-focused primary-care clinics in mall locations.
It might turn out that the shift of department stores from anchor locations to the middle of the mall turns out to be a win for everyone, from the stores themselves to mall owners to the various new businesses that move in to replace them.
Conveniently, operators of Class A malls tend to have the cash flow needed to invest in experiential, traffic-driving experiments that can further spark foot traffic, thus justifying the higher rents they are charging. In affluent areas, it’s not uncommon to see malls installing pickleball facilities, trampoline parks, or even massive futuristic-styled slides in common areas.
While Class A malls are eye-catching for their strong performance, Class B malls might present an opportunity for operators willing to put in the effort. Little new mall space – including Class A space – has been built in recent years: just 3% of currently available space was built after 2010. If demand for Class A space remains strong, it makes sense for developers to consider renovating and modernizing Class B+ and Class B malls.
What about the other malls?
If malls rated Class B- and lower are indeed doomed to shutter, that potentially represents opportunity for several groups. For example, a number of high-grade tenants from lower-classed malls will naturally seek to migrate to the nearest Class A mall, known to provide tailwinds for retailers. Thus, owners and operators of Class A malls stand to benefit from stronger demand and thus, the opportunity to raise rents.
Many of these non-Class A malls still have significant intrinsic value. The land on which they rest is already approved for commercial zoning and typically has often become centrally located, with well-planned roads leading to and from the sites already built. That adds value for developers seeking to convert the land into other uses.
Like what? Glad you asked. A strategy that appears to be gaining traction involves converting former mall sites into entire, pedestrian-friendly “urban-style” shopping districts – emulating not a strip mall, but rather a sanitized version of a big-city shopping area. A variation on the theme involves converting the sites into entire, walker-friendly mixed-use districts that feature multifamily residences, grocery stores, shopping and entertainment, and hotels.
The bigger players
For most equity investors, exposure to any potential they might see in malls is perhaps most conveniently achieved through REITs. Here are some REITs that are particularly involved in mall development and operations.
Simon Property Group SPG 0.99% . Simon’s portfolio includes roughly 110 traditional indoor malls across the U.S., including Class A malls and 22 malls in its elite Taubman Realty Group portfolio – properties the company regards as its “fortress” malls due to their performance, dominant positions, and high-income, high-traffic locations. The portfolio generates what many regard as a strong cash flow, and its credit situation is viewed as good enough for most of its debt to be of the unsecured variety. This, along with a healthy debt position, has apparently made Simon comfortable enough to redevelop their lower-rated assets. Simon has experimented with adding luxury residences and hotels adjacent to their malls, sometimes using space in former parking lots to create “micro-cities.”
The Macerich Company MAC 2.68% . Macerich’s portfolio includes 43 malls, most of which are Class A malls, as the company has sold off its lower-graded assets over the past 20 years or so – an effort that is ongoing. Macerich focuses on the West Coast (California, Pacific Northwest), the mid-Atlantic (New York to Washington, D.C.), and Sun Belt markets (Arizona) – geographies Macerich believes provide the most opportunity due to their limited available land and affluent populations. Like Simon, Macerich appears to believe mixed use is the future of malls, though their efforts have arguably focused more on directly integrating healthcare and office space – and as mentioned above, senior-living homes, into existing malls (rather than building structures near them). The company’s smaller, less diversified portfolio arguably means that it is putting more conviction into its bets, with the usual implications for risk and potential reward.
Brookfield Corporation BN -0.43% . Arguably one of the largest property companies in the world, Brookfield’s mall operations (currently branded as General Growth Properties or GGP) include 101 enclosed indoor malls, of which 20 are prime, Class A properties. These malls are part of a more diversified real-estate portfolio that also includes offices, multifamily residences, and warehouses. Brookfield’s mall approach has included converting anchor spaces into innovation hubs – in other words, coworking spaces, tech offices, and incubators. It is also experimenting with the aforementioned mini-cities concept: it is perhaps the least opposed of the three to converting an enclosed indoor mall into an open-air analog with walkable streets.
Conclusion
None of the above should be seen as a denial that malls in general are facing some serious challenges. Operators of any mall that isn’t a prestige property are likely to face some tough decisions soon, if they aren’t already doing so. However, malls are both a part of, and a reflection of, the U.S. economy. Although most would agree – on both cases – that a clear bifurcation exists, it’s arguably reasonable to suggest that naysayers about both malls and the U.S. economy might be a tad premature. With limited supply of Class A mall space likely to continue amidst sustained demand, it’s fair to consider the possibilities that innovation could uncover new opportunities – whether in the form of an evolution or rebirth.
As always, Signal From Noise should not be used as a source of investment recommendations but rather ideas for further investigation. We encourage you to explore our full Signal From Noise library, which includes deep dives on the recent gold rush, quantum computing, and the race to onshore chip fabrication. You can also find our take on space-exploration investments, a recent update on AI focusing on sovereign AI and AI agents, and the rising wealth of women.
