More malls turning to unconventional tenants to fill vacancies

Walk inside a former grocery store in Salt Lake City, and you’ll find customers scaling the walls.

The site, which used to be a Smith’s supermarket, is now a climbing gym. There’s a towering wall that lets as many as 100 people ascend a simulated rockface for two or three hours at a time. Outside, the parking lot is regularly packed with cars.

Momentum Indoor Climbing has served as the anchor for the neighborhood’s strip mall since 2014, assuming a role that’s typically held by large retailers such as big-box stores. It’s part of a shift for shopping centers, many of which are scrambling to replace tenants. With several national chains filing for bankruptcy this year and even Wal-Mart Stores Inc. closing dozens of supercenters, there’s plenty of space to fill.

“Until Amazon invents a way to go rock climbing online, we are not going to be at risk of becoming a short-lived tenant for these landlords,” Momentum CEO Jeff Pedersen said.

Most U.S. malls are still dependent on department stores to draw customers. But with consumers doing more of their shopping online, the traditional Sears or Macy’s have lost some allure as anchor tenants. Retail centers are increasingly relying on restaurants, movie theaters and entertainment amenities, according to Green Street Advisors, a real estate research firm. In some cases, laser-tag arenas and farmers markets can fit the bill.

As interest in rock climbing spreads, Pedersen expects gyms to move into centers run by larger mall operators, such as Indianapolis-based Simon Property Group Inc. and Bloomfield Hills, Michigan-based Taubman Centers Inc.

“This is the evolution of gyms located in busier and busier retail-type locations,” Pedersen said.

Medical clinics and more

Some malls have filled space with walk-in medical centers. The number of walk-in clinics in malls has risen 15 percent since 2011, according to data from the Urgent Care Association of America. In fact, a third of all urgent care is now located inside shopping centers, the group says.

The rise of entertainment options is leading people to reflect on the purpose of a mall, said Tom McGee, CEO and president of the International Council of Shopping Centers.

“Folks get a little too caught up in the stereotype of what a mall is,” McGee said. “Malls were built for people to do things that they have an interest in doing.”

It’s still rare for climbing gyms to take prominent space in shopping centers, but the activity has surged in recent years, setting the stage for a retail expansion. In 2015, 4.6 million Americans went rock climbing, up almost 150,000 from the previous year, according to a report from the Physical Activity Council and PHIT America.

Momentum’s 24,000-square-foot location in Salt Lake City filled a spot left empty by Smith’s, a store that was acquired by Kroger Co. In the past two years, the mall property manager has seen increased foot traffic and sales are up at the nearby Five Guys Burgers & Fries, Savers Thrift Store and Menchie’s Frozen Yogurt businesses.

The move toward experience activities in malls is bringing in more customers, but it comes at a cost. Tenants have to invest more in construction and are encouraged to sign longer-term leases by property owners. Pedersen said his company put $2 million into tenant improvements to raise the roof, allowing for higher walls. Momentum spent an additional $1.5 million on the necessary safety and workout equipment, he said.
Longer Lease

John Dahlstrom, property manager at Wasatch Commercial Management, said Momentum has a 20-year lease because they have an “unusual use.” An average lease for retail stores is five years, he said.

“That’s part of the dilemma with this,” Dahlstrom said. “At the end of the lease term, it’s their cost and not the landlord’s cost to remove all those things and then make the building back into something that we can use.”


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