At Lehigh Valley commercial real estate event, an outlook on malls, pop-up shops and restaurants

A February 2014 file photo of the Phillipsburg Mall, whose owner is currently exploring alternatives for the property. (THE MORNING CALL FILE PHOTO)

It’s one of the scariest thoughts for a mall owner: What happens when my shopping center loses an anchor tenant?

Well, for one, it immediately leads to lost income and traffic. And, if you’re not careful, a ripple effect can occur, where the center’s other tenants flee. In only 18 months, a mall’s lineup of 100 tenants can dwindle to just 10 shops.

In fact, that’s exactly what happened to a 1.3-million-square-foot regional mall in Pennsylvania that was built in the 1970s and is now a client of Hanna Langholz Wilson Ellis, a commercial real estate brokerage firm in Pittsburgh. Jon Knudsen, the firm’s director of retail leasing, declined to name the shopping mall, but he said the shuttering of one of its anchors triggered a host of additional closures.

Changing a shopping center’s narrative before it gets to that point was just one aspect of Knudsen’s presentation Thursday at the Lehigh Valley Commercial Real Estate Outlook and Awards, an event held at the Holiday Inn in Breinigsville that attracted more than 600 real estate officials. Knudsen was one of several experts who participated in the outlook’s main event focused on reinventing retail, an industry going through monumental changes as consumer preferences shift and online shopping continues to grow at a blistering pace. Other speakers focused on the proliferation of pop-up shops, particularly in Allentown, and the idea of restaurants as the new anchor tenant.

Knudsen’s presentation was particularly relevant, given the downsizing in brick-and-mortar retail amid a drastically overstored U.S. shopping climate. Earlier this week, in fact, Reuters reported two U.S. mall owners are attempting to acquire bankrupt department store chain The Bon-Ton Stores Inc., determined to save a significant tenant of theirs while protecting the value of their malls.

But not all retailers can be saved, and landlords need to have a plan in place to reposition the shopping center once an anchor is lost, Knudsen said. Following a property evaluation, he said an owner needs to take a look at the market the shopping center is located in to gauge what the local area needs and what opportunities exist. From there, Knudsen said, a landlord needs to create a new narrative around the shopping center.

“Anything you can do to kick the narrative of vacancy is the most important investment you make,” he said.

For example, when the 1.4-million-square-foot Monroeville Mall — about 13 miles east of Pittsburgh — lost its Dick’s Sporting Goods, Knudsen said they were able to create an exterior entrance and fill the space with a go-kart track.

Entertainment options, such as a go-kart track, are just one of the non-traditional uses malls are examining today. In addition, Knudsen said, malls are filling spaces with medical tenants, gyms and even churches. Some also are looking at redevelopment, considering knocking down their boxes and opting for residential, medical or storage purposes. If all else fails, Knudsen said, a sale is often explored.

In fact, the owner of the ailing Phillipsburg Mall, on the border of Pohatcong and Lopatcong townships in New Jersey, said in February they were exploring a redevelopment, sale or joint venture at the shopping center following the loss of yet another anchor.

Pop-up shops

One segment that’s doing well is experiential retail, of which pop-up shops are included, according to Natalia Stezenko, retail leasing and activation manager for City Center Allentown.

City Center has brought several pop-up shops to downtown Allentown, which start as short-term stores that Stezenko said help “bring life” to what might otherwise be an empty space in the city’s relatively young retail scene. An example includes the YWCA’s Perfect Fit Pop-Up Boutique in Three City Center, which sells gently used clothes, purses and accessories and recently signed a long-term lease with City Center.

In addition, the Truffle Bar occupies a 417-square-foot space in a street-level suite in Strata East on North 6th St., where the business sells handmade truffles.

Stezenko described the pop-up shops as a win-win.

From the retailer’s perspective, she said it gives the business a chance to connect with its customers and build awareness. Those businesses often range from an Etsy merchant trying to grow their customer base to online retailers testing the brick-and-mortar waters. In either case, Stezenko noted the pop-up shop option is often a cheaper way for a retailer to test out a concept, especially when compared to jumping right into a long-term lease.

And from a landlord’s perspective, landing a pop-up shop can provide additional income and fill a vacant storefront, reducing potential vandalism or squatting in the process. In addition, those pop-up shops can eventually turn into long-term tenants.

“It can revitalize a local area, like we’re doing in Allentown,” she said.

Food for thought

Another segment doing well — one described as vital to retail by TCH Development Principal Timothy Harrison — is the restaurant business.

Harrison would know, as TCH partnered with The Goldenberg Group to construct the 565,000-square-foot Hamilton Crossings shopping center in Lower Macungie Township.

In today’s world, Harrison noted, brick-and-mortar retailers are investing heavily in information technology to boost their online selling platforms. Meanwhile, the brick-and-mortar retailers who can’t afford to do that are buried under a mountain of debt, hindering their ability to adapt and forcing them out of business. So with traditional retailers redirecting investments away from physical storefronts, Harrison said it’s crucial that retail projects today offer a unique and compelling experience.

“Experiential development is the way forward,” Harrison said to the room of real estate officials, by this time munching on the platter of cookies on their tables. “Restaurants can become the experiential anchors in a retail project.”

Harrison believes they succeeded in that regard at Hamilton Crossings. For example, he said, they chose restaurants in six to eight industry segments, avoiding duplication and potential cannibalization. They also chose experienced operators on solid financial footing.

“We positioned our restaurants carefully,” he said, adding the presence of a diversified group of restaurants enhances the quality of the shopping center.

But don’t just take his word for it, Harrison told the audience in making his way to a shameless plug.

“If you haven’t yet visited Hamilton Crossings, please go see for yourself,” he said.

Awards

At the end of the event, the 2018 Commercial Real Estate Development (CRED) Awards were announced:

The CRED Community Development Award was given to the International Brotherhood of Electrical Workers Local 375 for their new headquarters at 101 S. Seventh St. in Allentown.Cityline Construction received the CRED Adaptive Reuse Award for the company’s conversion of a former St. Luke’s University Health Network information technology building in Fountain Hill into 22 luxury apartments.The CRED Vision Award went to Moravian College for their conversion of the Bethlehem 24/7 Racquetball Club into its Sports Medicine and Rehabilitation Center.

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