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Mall Operators Turning to Retail Incubators to Fill Empty Space

This is Not a Trend, Says One Leasing Expert. It’s a Sign of Things to Come.
August 8, 2018
Mall operators are taking a page from the playbook of their office counterparts and setting up retail incubators in some of the space left vacant by departed department and apparel store retailers.

Offering retail and technology startups a shared space to test their concepts before live shoppers, the new retail incubators also provide mall operators with an opportunity to find tenants with the potential for growth - and a diverse variety of new retailers giving shoppers a new reason to visit the mall.

This November, several small, startup retail and e-commerce companies plan to occupy 11,000 square feet of vacant space in a retail incubation space at New Jersey’s Cherry Hill Mall near anchor tenant Nordstrom.

Earlier this year, a 15,000-square-foot innovation center known as Cowork at the Mall opened in a former Sports Authority store at Chicago’s Water Tower Place.

And Simon Property Group, the nation’s largest mall operator, is in the early stages of developing a retail incubation program for a number of its properties.

Beyond just space, incubators offer fledgling new retailers access to experienced operators, coaching and networking opportunities to help them get their companies off the ground.

That could help companies and landlords alike.

Mall operators -- especially those in Class C properties where nearby demographics are changing - are struggling to find creative ways to increase their tenant mix and drive foot traffic, said Tom Fidler, Jr., principal and executive vice president at real estate brokerage MacKenzie Retail in Columbia, MD.

"This is not a [passing] trend," he said. "It’s a sign of things to come. If you’re a mall owner right now and you’ve got some unique, vacant spaces, you’ve just got to get creative."

Cherry Hill Mall owner Pennsylvania Real Estate Investment Trust teamed with Washington, DC-based incubator network 1776, which runs small business incubators in 10 cities across the Northeast, to develop the space at that mall.

Notably, the new incubator space will be PREIT’s first venture into startup incubation, and 1776’s first location in a mall.

"The Cherry Hill Mall location allows us to be more creative with our incubator as retail evolves and the face of work shifts," said Jennifer Maher, chief executive of 1776, in a statement announcing the agreement with PREIT.

The incubator will include showroom space where members can demo their products before establishing pop-up shops in the mall, said Heather Crowell, PREIT’s senior vice president of strategy and communications.

"It’s critical to stay relevant and creatively use space with innovative concepts," Crowell said. "We would love to be part of the discovery of the next great retail product."

Retail incubators have popped up across the U.S. the past several years. Target, Walmart and Ikea all have internal incubation programs, and other companies have created standalone retail incubator space.

Coworking, demo and event space provider BeSpoke has been operating an incubation center in Westfield San Francisco Centre for three years. It reports it attracted more than 100,000 visitors the first year, on its website.

Macerich Co., the third-largest U.S. real estate investment trust operator, just announced a partnership with Industrious, a company that operates co-working locations in almost 50 cities, to open co-working spaces at several of its malls across the country. The first is slated to open in January 2019 at Scottsdale Fashion Square in Arizona.

Many mall operators, though, are scrambling for unique ways to fill space, Mackenzie Retail's Fidler, Jr. said. His company is increasingly on the lookout for startup retailers, and he often scours local farmers’ markets and social media sites in search of potential tenants for his clients.

"We’re looking for anything to backfill space," he said.

Editor's Note: This story has been updated since it was originally published to include mention of Macerich today announcing plans to add coworking to some of its malls.

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