Economic Updates

Can the Redevelopment of Malls Help Close California’s Housing Gap?

There is an enormous opportunity in a handful of communities throughout California to support the transformation of significant real estate space, now occupied by shopping malls, into housing units, at both market and affordable rates.

Since malls were first conceived in the 1950s by Victor Gruen, an Austrian immigrant, their pace of development has skyrocketed – from 1970 to 2007 shopping center space more than quadrupled while the U.S. population increased by slightly less than 50 percent.  Today the U.S. has more retail space per capita than other leading economies (see chart below) and retailing accounts for 31 percent of all commercial property, according to Cushman & Wakefield.

Shopping Center GLA per Capita (SF)
All Figures in Millions as of 2018
	California		United States		EU-28(5)		Greater Europe(6)
	Total (M)	per Capita	Total (M)	per Capita	Total (M)	per Capita	Total (M)	per Capita
Population	39.8		330.1		511.8		802.8
Total Shopping Center GLA	911.6	22.9	7,639.0	23.1	1,761.5	3.4	2,235.9	2.8
Total Mall GLA	134.6	3.4	1,105.7	3.3	476.7	0.9	719.6	0.9
Super Regional Malls	101.9	2.6	758.6	2.3	138.8	0.3	239.0	0.3
Regional Malls	32.8	0.8	347.1	1.1	338.0	0.7	480.7	0.6

Though malls only represent 15 percent of the total retail square footage in California (and the U.S.) they have long stood as an anchor tenant in the community, supporting small businesses and jobs.  But economic, demographic, technological and behavioral trends have placed considerable pressure on underperforming malls to change their business model.

In the last few years a number of mall owners have focused on redeveloping their properties with multi-use applications in mind, with an emphasis on experience, adding more restaurants and outdoor boutiques, as well as community spaces that can hold concerts and other events.   One example:

• The redevelopment of the Westfield Mall in Century City, valued at $1 billion, expanded its footprint by about a third to 1.3 million square feet.  Along with more than 200 mostly new shops and restaurants, its new spacer encouraged visitors to linger.  There is an outdoor event space called the Atrium that can hold 1,000 people. Westfield’s production company will put on concerts, Broadway performances, children’s shows and other events.  By 2025 L.A. Metro’s Purple Line will have an official stop in Century City, which will provide a new transportation option to the 18 million people that step foot on this property each year and a new connection between workers and the 4,000 jobs the mall’s micro-economy supports.  

Some of these malls are also surrounded by massive surface parking lots, enabling developers to build hundreds of housing units without demolishing anything.

• The Westfield UTC Mall in San Diego got a $600 million capital infusion to expand its mall footprint and in 2017 they broke ground on the conversation of one of their parking lots into a $200 million 23-story residential building, with 300 apartments. The apartment building will include studios, one-bedrooms, two-bedrooms and three bedrooms and in 2021 residents, mall visitors and workers (4,000) will be connected to an extension of the San Diego trolley’s blue line.
• In the San Fernando Valley, Westfield’s Promenade is moving forward with a $1.5 billion project that plans to redevelop 34 acres on a large block at Topanga Canyon Boulevard and Oxnard Street.  The goal is to connect to Westfield’s two adjacent properties — the indoor Topanga mall and the Village, a $350-million outdoor shopping center that opened two years ago. The project will build 1,430 multi-family residential units along with stores, offices and restaurants. The estimated completion date for the project is 2035 and they are using half of the size of what is allowed to be developed on this site.  L.A. Metro’s Orange Bus line currently serves this region and all connections to the region’s public transportation system.  On an annual basis more than 19.4 visitors step foot on this campus, supporting more than 4,500 jobs.
• The redevelop of the Baldwin Hills Crenshaw Plaza mall plans to keep the mall’s square footage the same but it would add more than 300,000 square feet of retail and restaurant space, a 10-story office building, a 400-room hotel, 551 condos, and 410 apartments (10 percent below market rate) to the 43-acre site.  This site will be adjacent to a forthcoming light rail station on Metro’s under-construction Crenshaw Line, which is scheduled to open in 2020.  More than 11 million visitors step foot on this property, supporting more than 3,400 jobs.
• QIC recently won an approval from the City of Redondo Beach to invest $900 million to revitalize the 29.85-acre moribund South Bay Galleria.  They are planning to construct multiple buildings on surrounding parking lots that will feature a 150-room hotel, 300 apartments (including up to 30 affordable units), and an additional 217,000 square feet of retail space – up to 175,000 square feet of which could be used for offices.  By 2028 L.A. Metro’s Green Line extension into the South Bay will place a new stop by the Galleria.

Some developers are also taking a different path:

• Hudson Pacific Properties took another route with its $360 million redevelopment.  One Westside redevelops the underperforming Westside Pavilion Mall and changes will be completed by 2022 to provide Google with 584,000 square feet of Class A urban creative office space just steps from the Expo Line light rail’s Westwood/Rancho Park station.  The Expo Line is Metro’s most ridden transit routes carrying more than 60,000 daily passengers.

Those retail complexes that have been underperforming the most in the past few years will face a different fate.  In 2017, more than 6,400 stores closed and another 3,600 are expected to shutter in 2018, according to a 2017 Credit Suisse report.  That means  around 20 percent to 25 percent of America’s malls will close by 2022.

In California there are approximately 181 shopping malls with a gross leasable area of at least 400,000 square feet.  Some of them, like the Carousel Mall in San Bernardino were forced to close (2017) and the property is now owned by the City of San Bernardino.  City officials prefer demolishing the site and developing a combination of retail, residential and office space.  But plans have lingered for the past two years because of numerous debates on future use and lack of a comprehensive economic development strategy.  Where is the urgency of now?

A lack of housing is forcing people to spend more on it or go without it.  One million seven hundred thousand households in CA spend more than half their income on rent and utilities, the number of people without a home in L.A. County jumped 12 percent throughout the last year and CA leads the nation in residents without shelter.

CA’s policymakers have a great opportunity to work with the private sector to increase the number of housing units at malls with the space to do it.  Collocated housing on mall properties provides a great opportunity to capture growing demand from two of the key demographics looking for such accessible, convenient places to live: aging baby boomers and young millennials.

The Harvard Joint Center for Housing reports that by 2035 more than one in five people in the U.S. will be aged 65 and older, and one in three households will be headed by someone in that age group.  According to data from the CA department of finance, L.A. County’s population is projected to grow to 11.2 million from 10 million by 2060.  The population of 0-10 years olds will decrease by 26 percent during that same period, while its population of 75-100 year olds will increase by 250 percent.

The housing implications of this surge in the older adult population are many and innovative approaches are needed to respond to a growing need for housing that is affordable, accessible and linked to supportive services.  Mall properties are well suited to meet these needs as they continue to bring in new retail, like grocery and pharmacy, and new services including medical and senior care tenants.

Affordable and accessible housing is also in great demand among millennials which forward-looking malls could be repurposed to address as well.   As members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry-level homeownership is set to soar. These segment of the population is the most racially and ethnically diverse generation in the nation’s history and these young households will propel demand for a broad range of housing.  Bringing residential units into the mall space, a new population of residents will be in closer proximity to goods and services right at their front step, thereby mitigating traffic congestion.

The majority of Mall locations in CA are prime for residential uses because they are typically located on or near an intersection of a high or a main street and are well served by public transportation.  That puts the residential properties at the center of town, allowing residents easy access to main roads and highway systems.

There are a few bills in the state legislature that look to speed up the development of mall space for more housing, similar to what has bee done for sport’s stadiums, but the legislative process may not make the changes necessary to make it happen.