GPSolo Magazine - March 2006
Real Estate Law
The Reinvention of the Shopping Center
Long ago, America had something called the “village green.” It was the political, social, cultural, and administrative center of the community. A “main street” was added to the original village green to function as the main shopping area. Department stores ultimately developed, which then moved to the new “malls” starting in the 1960s. These shopping centers spawned variations such as mega malls, outlet malls, and specialty malls. But the fundamental reason for the existence of all of these centers was one thing: shopping.
A funny thing happened on the way to the mall. Both retailers and sociologists began to appreciate that shopping was actually a form of entertainment. This phenomenon seemed to be true for patrons irrespective of geography, gender, age, or socioeconomic status. Shopping can be done alone or with others; it can be inexpensive or free; it is local and nonseasonal; it is available every day and almost every evening; parking is easy and either inexpensive or free. These reasons explain why this form of retail development has stayed with Americans for the last half-century. Some form of destination shopping centers will survive for the same reasons that movie theaters have survived the onslaught of video stores, pay-per-view movies, HBO, Showtime, and Cinemax. Shopping, like movies, remains a relatively inexpensive form of entertainment.
Once developers accepted the notion of shopping as a form of entertainment, the addition of more traditional forms of entertainment (such as movies and dining) was not far behind. Soon, the lines between an entertainment center, a cultural center, and a community center began to blur. After all, if a venue for musical entertainment is built within a “shopping” center, then a “cultural” element is introduced, and, once the facility is built, it can serve as a community center for such events as speaker programs, conventions, and other community activities.
Reinvention/evolution. What has been called the reinvention of the shopping center can perhaps be better understood as part of a continuing evolution. More than anything else, this evolution has been a function of geography. Because suburbia was the birthplace of the traditional shopping center, trends in shopping centers cannot be understood without looking at what has happened in suburbia.
Today’s suburbs are sprawling faster and farther than ever before, creating “exurban” areas that function fundamentally free of any nearby city. People are not only moving out of cities, but they are moving farther and farther out. Moreover, the geography of jobs has evolved dramatically. Traditionally, jobs were associated with the city, mostly downtown. But, during the 1990s, 90 percent of office space was built in suburbia, and the suburbs account for more office space than inner cities in every metropolitan area except for Chicago and New York. A natural byproduct of this demographic has been the movement to the suburbs of shopping, dining, theater, and cultural and community venues. For a good discussion of this issue, see David Brooks’s On Paradise Drive (2004).
Moreover, the commonly accepted stereotype of the suburban population is inaccurate. Although one associates suburbs with families with children, married couples with children actually comprise only 27 percent of the suburban population. If decentralization continues and suburban areas survive as separate communities that are commercially independent from urban areas, then a variety of forms of entertainment and community venues that traditionally have been located in urban areas can be expected to continue to expand in the suburbs. It is therefore reasonable to conclude that regional shopping centers will include many other forms of entertainment, as well as commercial, cultural, and community activities.
New centers and challenges in drafting leases. New, multi-use shopping centers are already replacing the traditional regional shopping mall in certain geographic areas. These centers comprise an eclectic mix of traditional shopping, as well as other forms of entertainment, but add the dimensions of cultural and community venues that, in many ways, are forming the next generation of the village green. The common thread through most of these centers will not necessarily be shopping solely, but will include various forms of entertainment and stim-ulation. Because these new mega centers are integrating so many different forms of commercial and leisure activities, developers, landlords, and lawyers will have significant new issues to resolve.
Determining a tenant’s respective percentage share of common area charges in a shopping center is one such issue. Typically, the aggregate amount of leasable space in the project is divided by a particular tenant’s leasable square footage. To this is added some “load factor” to account for space in the project that is not leasable but needs to be accounted for (such as elevator shafts, mechanical closets, and lobbies). In new centers, however, the amount of nonleasable space landlords may want to include as part of the load factor will be a more complicated issue. This situation results from greater diversity in the kinds of tenants and far more common area amenities in newer centers than in traditional centers.
Damage and destruction issues in traditional enclosed malls will look simple when compared to damage and destruction issues for new centers. Also, the kinds of insurance required for clothing stores is different from, or at least less expensive than, the liability coverage for a rock music concert or for a politically charged speaker program. So, it will not be surprising to see many traditional shopping center tenants resist inclusion within their share of common area charges the cost of insurance required to cover other kinds of activities.
The effect of technology and e-tailing. Online retail sales continue to grow. The issue of electronic retailing (or “e-tailing”) is more complex than simply how much, or what, is being sold online. Many retail chains will offer in-store Internet sales, which will blend with other in-store shopping; as a result, there will be significant issues regarding where a sale takes place.
Consumer behavior is changing by reason of the Internet. The Internet provides what has been called “price transparency” among competing products. Consumers can go online and compare prices—as well as options for the products and even quality—all before they enter a bricks-and-mortar store.
Companies are also developing a new generation of websites that do things not only to introduce their clients to the company’s brand, but also to provide information on products that are not sold online.
Conclusion. Certain trends are clear. There will be a continued blending of shopping with other forms of entertainment, a continued blending of Internet shopping with traditional stores, increased security concerns, and continued development of new, large centers that will host cultural, sports, and community venues as well shopping and traditional forms of entertainment. Basically, consumers still want to go to shopping centers, they just want more than shopping—they want an entertainment destination. Developers will give it to them.
Dennis L. Greenwald is a shareholder of the Santa Monica, California, firm of Greenwald, Pauly, Foster & Miller. He can be reached at firstname.lastname@example.org.
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