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Is Retail Apocalypse for Malls a Boon for Coworking Spaces?

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The retail space in the United States has evidently grown in 2018. However, the reason is not development of new properties and infrastructure but a reduction in the number of stores or liquidation by companies with huge floor plans in malls. Retail space vacated in 2018 is expected to surpass the 2017 record.

Despite this shortcoming, all is definitely not lost for these malls as the space once occupied by retail stores is now being replaced with coworking offices. Mall owners are looking for options to counter rising space concerns and thus focusing on unconventional occupants. This shift is projected to boost the coworking space in the retail market.

Retail Space Demand Lowest in Six Years

Retail space going vacant has increased in 2018, per a report by CoStar Group, a commercial real estate information and analytics firm. CoStar's First-Quarter 2018 State of the U.S. Retail Market report states that demand for retail space in the United States in the quarter was 11 million square feet (MSF) -- its lowest in six years.

Retailers are looking to trim their number of stores and even opting for liquidation. Following this, retail store closures as of May 2018 totaled 95 MSF, only 10 MSF short of the entire 2017 mark. Decline in demand of store space can also be attributed to bankruptcies and closures of big players like Toys R Us and Kmart.

In this context, senior managing consultant for CoStar Portfolio Strategy, Ryan McCullough said that the “national retail vacancy rate” has started to contract, with the recovery slowing down. CoStar’s Director of Research Suzanne Mulvee said that “additional pressure from e-commerce” is a reason for this contraction, but the primary concern for the industry is “oversupply."

Coworking Companies: New Savior for Malls

In Arizona, the Barney's at the Scottsdale Fashion Square mall remained unoccupied since 2016. On Aug 8, Macerich Company (MAC - Free Report) , owner and operator of retail properties like the Scottsdale Fashion Square mall, entered into a partnership with Industrious Coworking.

This first of a kind partnership between a coworking company and a major mall owner is good news for retail space. CEO of Macerich, Art Coppola said that the company offers “top-tier, built-in amenities for today's professionals,” following which this partnership with Industrious “makes so much sense."

Moreover, along with Scottsdale, retail mall owners in the rest of the United States are now focused on replacing space which was once occupied by retail giants like the now-bankrupt Bon-Ton and Toys R Us with coworking companies. According to Jones Lang LaSalle Incorporated (JLL - Free Report) , a professional services company, coworking space is expected to increase by an annual rate of 25% by 2023 in the retail space.

Given this scenario, companies like Kimco Realty Corporation (KIM - Free Report) , Simon Property Group, Inc. (SPG - Free Report) , Weingarten Realty Investors (WRI - Free Report) and Urstadt Biddle Properties Inc. (UBA - Free Report) are expected to gain. Urstadt Biddle Properties has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In Zacks REIT And Equity Trust - Retail, with 29 out of 31 companies reported earnings. Of these, 19 posted an earnings beat and five met consensus.

Summing Up

Undoubtedly, mall owners have a lot to worry about declining demand for retail space as major retail giants are closing their stores. In this context, to counter rising space concerns, malls are entering new partnerships with coworking companies. So, these new partnerships should help mall owners and related companies witness growth in the coming months.

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