Shopping centres across Canada were reinventing themselves prior to the advent of the COVID-19 pandemic more than a year ago.

But the health crisis, which turned into an economic crisis as well, has accelerated the pace of change for the malls of the future.

Corrado Russo, Senior Managing Director and Head of Public Real Estate Investments at Hazelview Investments, said malls were already having a pretty tough time pre-COVID.

“They were losing market share in terms of sales to online shopping and e-commerce. So this was a trend that was already going on and they were sort of suffering from death of a thousand cuts and what COVID did, and the pandemic, is accelerated all of that. The estimate is they probably lost about five to seven years of market share in about 12 months because of the pandemic because everybody was forced to buy online and many of those that were not typical online shoppers became online shoppers and because of the convenience may not go back,” he said.

“We do think the mall is going to be in a tough spot. But it doesn’t mean they all have to disappear. Those that do a good job reinventing themselves will survive and can thrive especially if they see less competition.”

Over the last 10 years, Russo said malls have been changing from material goods to experiential shopping by creating locations such as movie theatres, bars, restaurants, gyms – all social gathering places.

That will come back and help them in the short term but it’s not going to be the answer for them going forward.

“Much of the space in these malls is taken up by the big department stores. These are having tougher, tougher times and that retail format is becoming obsolete. So they’re going to have some challenges in terms of how to fill that space and have it drive traffic to the malls,” said Russo.

“So I think the next phase in addition to everything they’ve done on the experiential side is to attract a new set of tenants that haven’t historically gone to malls. So you’ve got grocery stores which historically have been stand alones. If you look at what Europe’s done and why Europe’s done a better job surviving the pandemic is because they’re anchored by grocery stores rather than department stores.

“The other big one is attracting online retailers, the digital retailers, to the physical stores. I think the more and more we all learn about retail and the recipe for success for a retailer it’s to really have both online and a physical presence and that combination can be powerful and the most successful retailers get that. The malls, and the management teams, that can attract those digital retailers to the mall can help drive that space, help drive a certain vibe to their mall and continue to be successful that way.

“The last one I would say is big box. Some of the bigger box whether it’s a Home Depot or some of these bigger stores, we see clustered outdoors, again bringing them to the mall. It’s going to take all of that to get them to survive and I think they’re also going to see a lot of retail go away whether the malls completely disappear or whether you see half of the malls disappear you see other uses start to come in because at the end of the day they typically are in good locations that are easy to get to.”

That means you can have alternative uses for the land such as residential buildings or office buildings – even industrial real estate. Perhaps even fulfillment centres.

More and more property owners across Canada are taking excess space in parking lots and building condos and apartments. Russo said he believes this will become the number one use of alternative space at shopping centres.

“The nice thing about malls is they have a lot of excess land. They typically have a lot of parking and it does a couple of things for a mall. If you take away 40 per cent of the retail space of a mall and you turn it into residential, you’ve done something with the space and turned it into something of value but you’ve also brought a customer to the mall. Now you’ve got an audience you can target in terms of convenience oriented retail. Groceries being part of it. It makes the remainder of the mall much more productive. You kind of kill two birds with one stone,” explained Russo.

“It’s probably the number one thing investors are looking at when they are buying a mall today. What is the potential for converting to residential? I think that’s one of the recipes that can really help for those malls that need help, that are struggling, where you don’t need all the space you currently have.”

Russo said educational uses for mall space also has potential.

Bruce Winder, author of RETAIL Before, During & After COVID-19 and President, Bruce Winder Retail, said the shopping centre concept was well into its transformation before the pandemic hit and will continue to shapeshift as COVID-19 tapers off as a going concern.

“Over the last 20 years we have seen shopping centres become polarized into three groups: the A malls which cater to luxury shoppers, the B malls that are in transition to more functional marketplaces and the C malls which are being flattened in favour of residential communities. This polarization mirrors society overall as retail splits into high-end and low-end offerings. Big brands and small to medium sized enterprises,” said Winder.

“Luxury A malls are magnificent cash generators for all involved. With strong margins and a huge average ring, these destination shopping malls offer value-added experiences to cater to well-heeled customers. Service is everything in these malls as customers are pampered while they shop. Look for these malls to add even more technology-driven experiences where global brands integrate e-commerce and social media with physical brick and mortar showcases to create euphoric consumption.

“B malls will transition to become a mix of grocery, drug stores, dollar stores, online pick up spots, gyms, professional services (doctors, dentists) and restaurants that fulfill the needs of more modest income shoppers. We will also see the emergence of local digitally native brands as they build on their online success with a physical footprint. Technology will enable this modern marketplace with e-commerce, social media and bricks and mortar working together in harmony.

“For C malls, the math is straightforward. Landlords and developers can make a lot more money converting an underperforming plaza into condominiums or townhomes with convenience retail on the bottom. The economics are too attractive, especially in urban and suburban locations where many of these malls peaked in the 20th century.”

He said all three classes of shopping centres will convert to touchless retail where feasible as legacy pandemic fears shape design considerations for years to come.