Over the past 20 years, retail real estate has continued to adapt and evolve in the face of several headwinds, including the broader adoption of e-commerce and greater focus on social experiences. One of the key avenues by which the retail sector has changed is the embracing of an omnichannel presence. The second key avenue is integrating mixed-use spaces that expand the retail center from just a location where goods are purchased to a place that also offers engagement, entertainment, social connections and other services.
An early concern that arose alongside the advent of digital-only marketplaces was that operations, such as Amazon, would erode traditional brick-and-mortar retail, with online purchasing becoming the norm. While e-commerce spending as a share of core retail sales has climbed over the past decades, hovering around 20% earlier this year, the current outlook for retail is omnichannel. Case studies have shown that, when a vendor opens a physical store in a new location, that retailer often records an increase in its online visits from customers nearby. This halo effect is partly due to the brand awareness the store provides as well as the convenience of routing online order pickups and returns to that physical location. Meanwhile, digital native brands, such as Warby Parker, Allbirds and Fabletics, have found success in opening their own physical storefronts.
The transition to mixed-use development within the retail shopping center sector is nowhere more apparent than in the re-use or modernization of older, enclosed shopping malls. The Phoenix metro area is no stranger to these projects — ranging from the elevation of Scottsdale Fashion Square to a dominant destination for high-end shopping and dining, to complete redevelopments of older, defunct malls such as the Metrocenter Mall and Paradise Valley Mall.
Fashion Square Mall in Scottsdale, which originally opened in 1961 as a much smaller footprint, is an example of how continued reinvestment over the span of decades has been able to not only sustain but grow the mall amid a changing retail landscape. Originally anchored by a Goldwater’s Department Store and a supermarket, the mall has expanded over time, absorbing the adjacent Camelview Plaza in 1996 as well as constructing new wings in 2009 and 2015. These new wings were tenanted by experiential offerings, such as a Harkins Theatre and global luxury brands, joining new upscale restaurants and a co-working space at the property. Lifetime Fitness and additional restaurants are in the pipeline. While Fashion Square benefits in part by an affluent local demographic base, the mall’s focus on premier experiences has helped it become a destination dining and shopping experience for residents across the metro.
Keeping a tenant mix relevant to the local customer base, and shopping preferences in general, is critical to a location’s success. While Metrocenter Mall was the first indoor, two-story, five-anchor mall in the country when it opened in 1973, a reliance on department stores with aging business models led to the property’s general attrition. After closing in the summer of 2020 amid COVID-19-related challenges, the primary mall structure was demolished in 2022 to make way for a redevelopment project costing as much as $1 billion. This multi-phase project, expected to be completed by 2029, may ultimately house both traditional and medical office space as well as two hotels, a senior housing facility and 3,000 multifamily units, in addition to roughly 100,000 square feet of dedicated retail space. A similar dynamic is at play for Paradise Valley Mall. While the area’s Costco and JCPenney remain in operation, similar to Metrocenter’s adjacent Walmart, most of the Paradise Valley Mall has been demolished for a mixed-use redevelopment that also includes multifamily housing as well as a Whole Foods Market, a fitness center and a new dine-in movie theater concept.
Many mall redevelopment or reinvestment projects in the Phoenix area include a residential component. Even in first-ring suburbs that are already home to many residents, a mall offering housing onsite can, with the right tenant mix, foster a semi-urban walkable lifestyle that helps shore up a local customer base. This has been a key component of redevelopment plans for both the Metrocenter and Paradise Valley malls, and is also occurring at properties that are undergoing smaller reinventions. The former Sears pad at Superstition Springs Center, which is predominantly tenanted by national discount chains, may be demolished in the near future for the purposes of constructing a 254-unit apartment complex.
Ryan Sarbinoff is first vice president and regional manager for Arizona and New Mexico at Marcus & Millichap, a commercial real estate investment sales brokerage and capital markets advisory firm.
Photos courtesy of Scottsdale Fashion Square
The two parts of this cover story are: