Most of the global real estate market has been battered first by the pandemic and now by a looming economic crisis, but Macerich's slice of high-end retail property is surpassing even the national mall landlord's big expectations.
The real estate investment trust said it signed nearly 975 leases last year totaling more than 3.8 million square feet, demand not seen since the Great Recession. Macerich, based in Santa Monica, California, reported a roughly 3% jump in tenant revenue for the full year from 2021, and portfolio sales per square foot for spaces less than 10,000 square feet jumped from $801 for the fourth quarter of 2019 to about $870 for the fourth quarter last year.
The company, owner of nearly 50 million square feet across 44 properties concentrated on the West Coast, around New York City and near Washington, D.C., is seen as a bellwether of real estate activity in the nation's malls. Its gains show that after a deluge of store closings, retail bankruptcies and operating restrictions throughout the early years of the pandemic, some retail landlords across the country are benefiting from customers returning to brick-and-mortar stores.
"Interest continues at levels we have never seen before," Macerich CEO Tom O'Hern said on an investor call Tuesday. "There is robust retailer demand, and even though we continue to see foot traffic at about 95% of pre-pandemic levels, sales are up compared to before. We haven't seen this kind of activity since before the Great Financial Crisis."
Despite a worsening macro-economic environment riddled with inflation, rising interest rates, slowing consumer spending and other challenges, Macerich signed more than 260 leases in the fourth quarter of 2022 that spanned upwards of 900,000 square feet of space.
What's more, Doug Healey, the firm's executive vice president of leasing, said the landlord has been able to attract a significant number of new brands and tenants in a sign that demand is stretching beyond Macerich's traditional tenant base.
"We signed more than 100 leases with 88 new-to-Macerich brands," Healey said of companies such as Everlane, Rothy's, Hermes, Parachute and Samsung.
Holding Momentum
Macerich's portfolio reached more than 92.5% full by the end of 2022, up 110 basis points since the end of 2021 and up more than 410 basis points since the company hit its lowest point in decades by the end of the first quarter in 2021.
With strong retention rate and no bankrupt retailers on its tenant roster, the landlord expects the retail market will continue to strengthen throughout the year ahead.
"We're seeing quite a bit of interest, and if anything, a sense of urgency to get deals done and documented," O'Hern said of no noticeable slowdown in interest or leasing volume.
After the landlord's record leasing year in 2022, Macerich's leasing pipeline for new store openings is expected to encompass 2 million square feet and is valued at more than $62 million of incremental rent.
That's a figure Healey said he is trying to increase as new deals are approved and new leases signed.
"Although the future remains unknown, and despite the macro-economic environment and looming recession, today we see very little pullback from retailers," Healey said. "I think this is the result of the very healthy retail environment that exists to day."