Vacancies at Circle Centre mall hit a five-year high in 2005. But so did salesper-square foot. How does one reconcile the discrepancy?
Observers say the mall is luring more high-end consumers with trendier shops despite having a big chunk of open space.
“They’ve been incorporating and attracting more productive and upscale retail concepts,” said Terry Sweeney, vice president of real estate development for Indianapolis Downtown Inc.
The 10-year-old mall posted $393 in sales per square foot in 2005, up from $383 in 2004. For the second straight year, it topped the national average, which was $392 in 2005, according to the International Council of Shopping Centers.
The mall’s occupancy level, however, dipped. The mall averaged nearly 20 percent vacancy in 2005, according to a new filing with the city by mall manager Simon Property Group Inc.
Simon did not return repeated phone calls.
The high vacancy rate might explain why the mall’s profit, before depreciation, slipped to $5.4 million, its lowest point in five years. In 2002, when the mall had 91-percent occupancy, its profit was $9.5 million.
Five new stores opened in 2005: Hennes & Mauritz, a hip, 20,000-square-foot clothing retailer; Bostonian; Bijou Bijou; BoLoCo Burritos; and The Walking Co.
“They’ve replaced older concepts with newer ones, and their revenue has increased,” Sweeney said.
Abercrombie & Fitch, American Eagle, Godiva Chocolates and Johnston & Murphy also renewed their leases and remodeled. Clark’s Shoes renewed its lease and expanded.
The boom in downtown condo development also helped fuel the increase in sales per square foot, analysts said.
“There are a number of new projects that are enticing people, whether it’s empty-nesters or young professionals, to move into the city and get all the benefits of downtown living,” said Tim Hoffman, a financial analyst at El Segundo, Calif.-based CB Richard Ellis.
The new residents not only provide more foot traffic, they also tend to be affluent, meaning the demographics for downtown retail are improving. The mall historically has relied on convention-related shoppers for about half its business.
The rise in the vacancy rate doesn’t faze officials with the city, which owns the land under the 791,000-square-foot mall and paid more than half of the $319 million cost to build it.
“The mall continues to be an economic driver for our downtown,” said Barbara Lawrence, executive director of the Indianapolis Bond Bank. “Whether you’re from the north side of Indianapolis or the south side of Chicago, when you’re here visiting, you’re drawn to the mall.”
The fourth floor continues to be Circle Centre’s Achilles’ heel, analysts said. Much of the floor has been vacant since The World Mardi Gras nightclubs, one of the mall’s original tenants, closed two years ago.
“If you look back at where the mall started to today, the fourth floor might have been done in a different way,” said Eric Hillenbrand, second vice president of retail services at the local office of St. Louis-based Colliers Turley Martin Tucker. “But the balance of the mall seems to be vibrant and healthy.”
IBJ reported in April that mall operators are trying to lure the Lawton, Okla.-based Percussive Arts Society to the fourth floor.
Restaurants on the mall’s first floor have been a huge part of the mall’s recent success.
St. Elmo Steak House had $11 million in sales in 2004. Palomino brought in $6.3 million, Champps Americana $5.8 million, and P.F. Chang’s China Bistro $5.6 million.
By comparison, Mo’s Steak House, a block east of the mall, had $2.8 million in sales in 2004.
Last month, St. Elmo’s father-and-son owners-Stephen and Craig Huse-announced plans to build a second restaurant connected to Circle Centre.
The convention center expansion in 2010 should give the mall another boost.
Assuming the city succeeds in its efforts to build a new convention hotel, the city could host 138,000 more visitors annually when it opens the new expansion, according to a 2003 study by New York-based PricewaterhouseCoopers LLP. The Indianapolis Convention and Visitors Association expects the city to attract 1 million convention visitors in 2006.