Report: Malls Offer Preview of Commercial Real Estate Collapse – PYMNTS.com

Are malls the canary in the commercial real estate coal mine?
A recent Bloomberg News report warns that the collapse of the American mall industry could be near, and could portend a wave of commercial real estate defaults that extends to office spaces hit by the work-from-home phenomenon.
The report cites the example of the American Dream mall in New Jersey — which is being sued after defaulting on $389 million in debt to lenders — as well as large malls in New York and Los Angeles which are facing foreclosure.
“The mall business can provide a preview to the challenges owners and lenders of office buildings may face in the coming years,” Vince Tibone, a retail analyst at Green Street, said in an interview with Bloomberg.
Already on rocky ground, the industry is now facing more aggressive lenders, the report said, as interest rates are skyrocketing. As borrowing costs rise, property value will fall, Bloomberg argued, leading to a wave of defaults throughout the commercial real estate industry that could extend to office buildings as company’s reduce the amount of space they lease.
PYMNTS’ Karen Webster explored the downturn in mall/department store shopping — and what it could mean for grocery stores — earlier this month.
“If you’ve shopped at a department store lately, chances are you’ve probably had the whole store to yourself,” Webster wrote.
“Foot traffic is down significantly, including over the important holiday shopping season. Analysts reported that over the five days between Thanksgiving and Cyber Monday, foot traffic was well below 2021 and 2019 levels at both department stores and malls.”
This is happening against the backdrop of a debate about the rise in the number of people who work from home.
As PYMNTS wrote last week, answering the question of hybrid, remote, or full-time in-office employment policies is growing critical to determine internal spending.
On one hand, employer plans for work from home (WFH) are trending down, according to new research from the Survey of Working Arrangements and Attitudes conducted by economists from Stanford University and The University of Chicago.
That survey found that 13% of full-time workers are fully remote compared to 59% who are on site full-time, while 28% are in a hybrid arrangement.
This hasn’t stopped nearly three-quarters of workers in London from saying they’d rather quit their jobs than return to the office full-time, with many saying they would need a pay hike of at least 16% for them to consider going back, per Bloomberg data.
Cities say they’re feeling the pinch of people working from home. In Manhattan, for example, remote work is costing merchants $12 billion a year as workers no longer buy their morning coffees or get their drycleaning done in the city.
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