Why Open-Air Shopping Centers Are Today’s Kings of Retail

DLC was founded in 1991 by Adam Ifshin, and as the company’s CEO, he has grown DLC into one of the nation’s premiere owners and operators of retail real estate. DLC is currently enjoying market-beating success thanks to its concentration in open-air neighborhood shopping centers, which have been prospering far beyond malls and high street retail. To encapsulate the strong opportunity in open-air shopping centers for investors and retailers alike, DLC recently published “A Breath of Open Air,” a white paper articulating why open-air is currently the prosperous darling of retail in the US. (You can download the report for free here.) Partner Insights spoke to Ifshin about why all CRE investors and retailers should be taking a close look at open-air shopping center retail.   

Commercial Observer: How would you describe the current financial health of America’s open-air shopping centers?

Adam Ifshin: Very, very healthy. Occupancy data suggests that we’re at or near all-time highs in occupancy in both percentage and income. At the start of the global financial crisis, retail real estate was significantly overbuilt. There were too many stores. Now, we’ve had a 15-year accelerating decline in new development. Coming out of Covid, the rapid acceleration of construction costs ended any facet of new suburban commercial retail open-air development. So that’s helped the industry get healthy. The open-air shopping center is better for e-commerce fulfillment, and occupancy costs might be a third or half that of regional malls. It also helps that the suburbs are back in favor as a place to live, and that retail is healthy overall. This is the third year in a row in which more new stores will open than close.

Tell us about DLCs portfolio of open-air shopping centers, and how it has performed over the past few years.

Over the last two-and-a-half years, we’ve seen record amounts in occupancy: up 600-700 basis points. We went through a major growth period from 2014 to 2017, when we acquired well in excess of a billion dollars worth of real estate. In 2022, we acquired about $175 million worth, most of it in Texas, where we had a presence. We closed on a $50 million acquisition in mid-July, and have another $130 million in the pipeline. We focus investment in primary suburban markets we know really well, and certain select secondary markets that have a college or university as the primary driver of demographics and employment. And we’re really good in the open-air, value-oriented space. 

What types of retail outlets are thriving in open-air shopping centers and why?

Value is what’s thriving, especially given these inflationary times. People have no problem shopping 80% of their life at value, and 20% on experiences and aspirational goods. Value-oriented chains like Ross Dress for Less, T.J. Maxx, and dollar stores are doing very well. Then there are the smaller box discount grocers like Grocery Outlet, Aldi, popshelf, Five Below – the value players who provide a little edge to the value experience. Ultimately it’s about value, convenience, and the suburbs. 

How are the rents performing for open-air shopping center retail compared with other forms of retail?

Occupancy is high and construction costs are up. Those two factors have led rents, including net effective rents, to grow for both renewals and new leases in open-air. Rents are going in the other direction for 90% of malls. Foot traffic and sales are down, so rents have to follow. There’s still much lower occupancy in the Class B mall space than in open-air. In high street, the density remains intriguing, but rents have had to adjust. In places where the shopping streets are dominated by residential around them, as opposed to a mix of residential and daytime office, the retail has recovered much faster.

Given all that, how valuable is the current opportunity for retailers that might be considering an outlet in an open-air shopping space?

We’re seeing a real influx of first-to-market retailers coming out of enclosed malls and into open-air. In Carbondale, Illinois, we converted a former big box into Old Navy, Ulta, and Bath & Body Works. All three tenants came out of the mall across the street for the opportunity to get more traffic, stronger co-tenants, and lower occupancy cost. Retailers have realized that the store is the ultimate weapon on their balance sheet. It’s still the cheapest and most effective and efficient way to acquire and retain the customer, to process returns, and to solve last-mile fulfillment and delivery. All of those things are driving the value proposition for the retailer in open-air. 

Talk a bit about how DLC is working with ICSC these days.

I’ve been involved in ICSC for a long time. I was the volunteer leader of its government relations and advocacy effort. I’ve served on its board and was the longest-serving member of its executive board. My family and I are primary large donors to the ICSC Foundation to support education, and to help young people learn about the real estate business. We need to attract a whole new generation of young people to our business. We’ve partnered with ICSC to support and advocate for the industry, and to make sure we’re treated fairly in Washington, DC. 

What are some of the open-air shopping center projects DLC will be working on over the next year or so?

We’re doing a host of redevelopments across the country. We’re redeveloping a shopping center in Ithaca, New York, where Cornell University and Ithaca College are based. It’s probably our 10th redevelopment of a shopping center near a college. We’re bringing a host of value-oriented retailers, including Nordstrom Rack and HomeSense, to a very large asset in North Dallas called The Village at Allen. There, we’re repurposing one end of the shopping center to bring in new best-in-class anchor tenants. At a shopping center in Poughkeepsie, NY called South Hills, we’re working on our first true mixed-use development. We’re getting approvals to add both self-storage and 300 units of Class A multifamily housing. The housing and self-storage will both be a first for us. We have been successful at scaling our projects to meet the value-oriented ethos of our company.