America Has Room for 1 More Mall (At Least)

Last week, The Wall Street Journal ran a story on Sarasota's Mall at University Town Center. The Journal suggested that this new mall, which opened in 2014, could end up being the last big traditional mall ever built in the United States.

Indeed, weak mall traffic and the rise of e-commerce have given retailers pause about opening new mall-based stores. Nevertheless, upscale mall owner GGP (NYSE: GGP) believes the U.S. has room for at least one more traditional mall. It has recently begun excavation work for The SoNo Collection, an upscale mall it is developing in Norwalk, Connecticut -- and plenty of retailers are eager to get on board.

Location, location, location

GGP isn't building a new mall because it thinks there aren't enough malls in the United States. Everyone in the retail and real estate industries understands that the U.S. has far too many malls. However, excess mall space isn't an issue in every single part of the country.

Connecticut's Fairfield County is one of the few places where mall space is lacking. Fairfield County typically ranks among the 10 highest-income counties in the United States. Yet there are only three malls along the roughly 50-mile I-95 corridor between the New York border and New Haven, a region that is home to more than 1 million people.

Stamford Town Center (which is in the southwestern part of Fairfield County), is about 25 miles from Westfield Trumbull and more than 30 miles from the Connecticut Post Mall. GGP's SoNo Collection development would help fill the geographical gap between these existing malls.

Meeting the local market's demand

The SoNo Collection is designed to address untapped demand from wealthy shoppers in the surrounding area. Nordstrom (NYSE: JWN) has signed up as an anchor tenant, as has Macy's (NYSE: M) upscale Bloomingdale's brand, even as Macy's is in the midst of closing about 100 stores. This will be the first Nordstrom store in Southwestern Connecticut and the first Bloomingdale's anywhere in the state.

GGP has already pre-leased about 50% of the mall's space at strong rents. On its first-quarter earnings call, GGP revealed that it is increasing the scale of the project. Originally, it had planned to build 728,000 square feet of retail space; now it has plans for about 1 million square feet.

GGP's leasing efforts will be aided by the fact that the Stamford Town Center, Westfield Trumbull, and Connecticut Post malls don't cater to an especially affluent clientele. The three malls are mainly anchored by the likes of Macy's, J.C. Penney, and Target. The Westfield Trumbull mall does have Lord & Taylor as one of its anchors, but even Lord & Taylor doesn't have the cachet of Nordstrom or Bloomingdale's.

Full steam ahead

While GGP only secured its final zoning approvals a few weeks ago, the company has already begun excavation work on the site. Vertical construction is expected to begin later this year, allowing GGP to open the mall by the fall of 2019. (That's about a year behind the original schedule for construction.)

The development of The SoNo Collection shows that it can still make sense to build a new mall, despite changing consumer shopping habits. Indeed, GGP isn't the only company that is still interested in building malls. In recent years, Los Angeles-area developer Rick Caruso planned to build a new upscale mall (also anchored by Nordstrom) in Carlsbad, California. The plan was scrapped because of public opposition, not for business reasons.

Mall closures will vastly outnumber new mall openings in the U.S. in the years ahead. Yet savvy developers are still likely to find a few underserved areas where it would make sense to build a new mall.

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Adam Levine-Weinberg owns shares of J.C. Penney, Macy's, and Nordstrom. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.