The Economics Of Owning A Shopping Mall
Buying a shopping mall seems simple: purchase a big building,
fill it with stores, and watch the rent checks roll in.
However, the reality of how malls make money
and how they fail is one of the most complex stories in real estate.
The Massive Upfront Costs and Categorizations of Malls
Building a large regional mall is incredibly expensive.
Land, concrete, steel, plumbing, and meeting local zoning laws
can run into the hundreds of millions of dollars before
a single store opens.
Buying an existing mall is usually cheaper upfront,
but the price tag tells you exactly what kind
of bet you are making on a neighborhood.
Malls are typically grouped into classes.
A Class A mall features luxury department stores,
high sales per square foot, and locations near wealthy suburbs,
and these can trade for over a billion dollars.
Conversely, lower-tier malls with weaker anchor stores
in lower-income areas might sell for a tiny fraction
of their construction cost.
Most people who own malls today do not own them outright;
they own them through Real Estate Investment Trusts (REITs),
allowing ordinary investors to buy shares in
a mall portfolio on the stock market.
Hidden Costs and Traps for Mall Owners
Even if a mall’s purchase price seems reasonable,
new owners are often blindsided by a layer of inherited costs:
- Locked-In Anchor Leases: Big department stores usually sign leases spanning decades, often at shockingly low rent, and you cannot easily renegotiate them.
- Deferred Maintenance: Roofs, HVAC systems, parking lots, and elevators require constant upkeep. A previous owner cutting corners will result in massive repair bills for the new owner.
- Co-Tenancy Clauses: Buried in many leases are terms stating that if a major anchor store closes, smaller stores are allowed to pay reduced rent or exit their leases entirely.
The moment one big piece falls out,
the whole financial structure underneath it shifts.
The Four Layers of Mall Income
Malls generate revenue in a much more layered way than most realize:
- Base Rent: Stores pay a fixed monthly amount per square foot. However, anchor stores pay drastically less (sometimes $5 per square foot) compared to smaller shops (which might pay $50 or $60). The anchor gets a discount because it brings in the foot traffic, effectively subsidizing the mall, while the smaller stores pay full price to be near that traffic.
- Percentage Rent: Malls take a small percentage of a store’s sales once they cross a certain threshold (a “breakpoint”).
- Common Area Maintenance (CAM): Tenants pay their share of the costs to run the building—cleaning, lighting, security—based on how much space they occupy.
- Alternative Income: Parking fees, advertising space, and tiny kiosks in the middle of walkways. Kiosks can be the most valuable real estate per square foot because position is worth more than space.
The Downside: Utilities and the CAM Trap
The expenses of running a mall are enormous.
Utilities, security, and property taxes can cost hundreds
of thousands of dollars a month.
There is also a trap inside the CAM structure:
shared costs do not shrink when stores close.
The lights, security, and cleaning are still required.
As vacancy rises, the same pool of expenses is divided
among fewer paying tenants.
The remaining tenants’ CAM bills go up,
which pressures more marginal tenants to leave.
A mall might look 90% occupied,
but if half of that space is anchor stores paying low rent
and the rest are discounted short-term leases,
the actual cash flow is incredibly weak.
The Fall of the Department Store Anchor
The entire commercial logic of a mall relies
on forced movement to increase exposure.
Anchors are placed at opposite ends so shoppers have
to walk past smaller shops.
For most of the 20th century, department stores like Sears
were the backbone of this strategy.
When major anchors began closing rapidly in the 2010s,
it devastated malls.
Due to co-tenancy clauses, one anchor closure could trigger
a wave of rent reductions across dozens of stores.
Filling an empty 100,000-square-foot anchor box
is extremely slow and expensive,
often costing millions just to subdivide the space.
The Rolling Acres Mall Example
Rolling Acres Mall in Akron, Ohio, perfectly illustrates this cycle.
Opening in 1975, it quickly grew to over 140 stores
and was 98% occupied by the mid-1990s.
However, as anchors started leaving due
to nearby competition and poor sales, the mall’s value plummeted.
By 2006, it was sold for just $1.6 million.
By 2013, it was completely empty.
Vandals stripped it of copper wiring,
and the elements rotted it from the inside out until
it was eventually demolished.
It took less than two decades to go from 98% occupied to a pile of rubble.
Adapting to Survive
Online shopping destroyed the mall’s original monopoly
on convenience.
To survive, modern mall owners must shift away
from purely leasing to clothing retailers.
Successful malls now fill empty anchor boxes with experiences
that cannot be bought online:
restaurants, gyms, medical clinics, co-working spaces,
and entertainment venues.
Ultimately, owning a mall is not just owning a building.
It is managing a tightly interconnected financial system
where every tenant’s fortune is quietly tied to the others.
