Philly Malls That Transitioned To Mixed-Use Are Succeeding. New Legislation Could Help The Rest

Across the Philadelphia metro and across the nation, it's a tale of two malls.

In southern New Jersey, the formerly flagging Burlington Center Mall is about to breathe new life as an industrial, retail and multifamily campus, thanks to a partnership between Clarion Partners and MRP Industrial. Others, like the half-empty 1M SF Neshaminy Mall in Bucks County, have been put up for sale as is, victims of what one tenant put down to a failure to change. 

Philly's shopping center story mirrors a phenomenon playing out nationally: Malls are back — but only those that invest in reinventing themselves as mixed-use, live-work-play hubs.

Now a bill sitting in Pennsylvania’s Senate offers a way forward for distressed mall properties, offering owners up to 15 years of tax abatement in exchange for revamping former retail centers into mixed-use projects, with a special emphasis on adding a housing component.

“Shopping malls [have] experienced this sort of decline in traditional use to where you're going to have a lot of these municipalities that have large-scale acreage that is either underfunded or significantly underutilized,” said state Rep. Josh Siegel, a Democrat from Allentown and the sponsor of the bill aimed at sidestepping a “retail apocalypse” that threatens communities across the state.

“The idea is, how do you take what were once called the new main streets of America and breathe life into them?” he said.

The legislation, which has already passed the Pennsylvania House with bipartisan support, offers a 10-year tax abatement to developers that redevelop malls. If developers meet targets for affordable housing, energy efficiency or other requirements, they could qualify for two to five years of additional tax abatement.

As of last year, the total number of U.S. malls had dwindled from about 2,500 in the 1980s to 700, and Green Street estimates between 15 and 20 malls will close annually. Pennsylvania was home to just 56 as of late last year.

Some of those that remain have prospered, like King of Prussia Mall. According to cellphone data analyzed for Bisnow by Placer.ai, foot traffic there has grown slightly from pre-pandemic levels. Owner Simon Property Group recently announced a slate of new tenants, including an interactive Netflix installation set to open by 2025.

Across the Delaware River, Cherry Hill Mall, which plans to soon add a coworking component, has seen its traffic grow by nearly 9% over that period. 

But overall mall vacancy has crept up in recent months, according to CoStar data shared with Bisnow. After hitting a 10-year high of 7.3% in the first quarter of 2021, Philadelphia malls battled back to 5% as of the end of last year. It has lost ground every quarter since and now stands at 5.6%.

“Similar to office trends unfolding today, there has been a flight-to-quality among retail. Malls that invested capital in upgrading their infrastructure and the customer’s shopping experience emerged as winners, like King of Prussia and Cherry Hill Mall,” CoStar Market Analytics Associate Director Brenda Nguyen said in an email.

“Unlike other commercial properties, retail has the unique challenge of constant adaptation.”

That's where incentives come in, said Douglas Green, principal at Philadelphia-based MSC, adding many suburban communities have lost tax revenue as malls have decayed.

“Neshaminy, Exton, Oxford Valley Mall are all going to get redeveloped,” he said. “Malls that were stalwarts are going to get completely redeveloped. And a tool like this will really help.”

Public-private partnerships to revive flagging malls aren't a new concept. Cities from Tuscaloosa, Alabama, to Omaha, Nebraska, have rolled out millions in incentives to redevelop malls.

But Pennsylvania would be among the first to make it a statewide priority.

That will help even out what stands as a very unevenly developed market, Green said.

“It's really the haves and the have-nots,” he said. “The Tier 1 malls are doing very well, and they will always do well, but the [supply of] B and C-Class malls far outweighs the demand.”

Siegel's bill has attracted local support. Philadelphia’s Tarik Khan and G. Roni Green, along with suburban lawmakers like Tim Brennan and Tina Davis of Bucks County and Lisa Boroski of Delaware County, are among those signing on.  

“If developers are staring at the malls and being like, ‘I can't make sense of these numbers because of the interest rates and the high cost of redevelopment,’ that's where this bill comes in, and it's going to help developers make economic sense of an otherwise really tricky financial composition,” MSC's Green said.

One prime candidate for redevelopment could be Philadelphia's struggling Fashion District, which has faced everything from the brink of bankruptcy to crime issues.

Fashion District would be home to a third of the 76ers' new home base. If that moves forward, new housing and an 18,000-seat NBA arena would take its place.

Should that plan not pan out, it's back to square one for the mall, Siegel said.

Other communities with aging shopping centers from Harrisburg to the Philadelphia area’s Bala Cynwyd are in need of a central place like a downtown or a main street, he said, adding people have been motivated to call his office weekly to ask about the status of the bill.

“This [bill] is the one of mine that gets the most attention,” he said, adding that the Pennsylvania Builders Association, Pennsylvania Municipal League, Pennsylvania State Association of Township Supervisors and others have voiced support for the bill.

Unlike Philadelphia’s 10-year tax abatement that primarily added brand-new Class-A apartments to the city, Siegel said his bill could be tailored to each suburb or town’s needs, incorporating gentrification and affordable housing concerns.

“This … hopefully helps a lot of municipalities that are either built out or don't really have other opportunities for development [and] have a kind of once-in-a-lifetime marquee project that I think they can build the rest of their municipality around,” he said.

David Wilk, Temple University’s real estate program director, said malls need to be OK with being part of larger redevelopment schemes.

“Master-planned communities [are] going to be a little bit more challenging to finance in the capital markets,” he said.

That means any incentives “are going to have to get creative to finance it.” 

“So take King of Prussia. You've got the mall, but then right down the street, you've got the town center, which is really doing well, and thousands of residences all around there,” he said. “That is like a live-work-play atmosphere. ... That is going to be the driver of these places in the future.” 

Ethan Chernofsky, senior vice president of marketing at Placer.ai, said he was in favor of anything that diversified former malls.

“The future of the mall, especially when it comes to top-tier malls and major regional centers, is an approach that emphasizes a more holistic experience,” he said.