Malls Vulnerable, Overvalued Today
Simon Property Group, Macerich, and GGP's moats have disappeared under the threat of e-commerce, and we think shares have room to fall.
Brad Schwer: Our fresh take on U.S. mall REITs incorporates numerous headwinds hitting the industry. We've assigned no-moat ratings for Simon Property Group, Macerich, and GGP, with negative trends to each mall owner based on a diminishing network effect.
If we take a step back, it's no secret that sales are shifting online. E-commerce accounts for about 10% of total retail sales, and that number is growing at a double-digit pace annually. This is definitely a game-changer for the industry, and a problem for mall owners. Many of their tenants are shifting away from the physical store and favoring an online strategy. We've seen some of the most common mall tenants either reduce or freeze store count growth recently. While overall sales may still be healthy, retailers aren't getting as much bang for their buck at the physical locations.
Brad Schwer does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.