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Simon says physical retail is making a comeback

REIT CEO touts strong mall lease and sales numbers during 3Q earnings call.

David Simon, CEO of Simon Property Group, declared malls are making a strong comeback during the company’s recent third-quarter earnings call, according to Bisnow and other news outlets. Simon also noted that malls are holding their own vs. online shopping.

“I need not remind you when physical retail was closed in COVID, all the naysayers saying that physical retail was gone forever,” he said during the call. “However, brick-and-mortar is strong, brick-and-mortar retail is strong, and e-commerce is flatlining.

“The flight toward bricks-and-mortar is real. It’s going to be sustained. And if they’re in the retail business and they want to grow, they’re going to open stores, and it’s that simple, because the returns on e-commerce just aren’t quite what everybody talks about.”

Online sales reached $507.7 billion during the first half of 2022 in the U.S., according to the Census Bureau. That figure is a little more than half of the $959.9 billion reached last year. E-commerce sales would surpass $1 trillion this year if the current pace remains. It would be more than last year, but less than the increase that occurred between 2019 and 2020. Sales increased from $569.8 billion to $811.6 billon during that timeframe as COVID-19 restrictions limited in-person shopping.

The company’s quarterly earnings appeared to back up Simon’s claims, reports. The real estate investment trust (REIT) maintained the sales and leasing momentum it gained during the second quarter. It leased more than 4 million square feet and saw retailer sales reach a record of $746 per square foot at its malls and outlets during that timeframe.

In the third quarter, Simon Property Group reported another retail sales record of $749 per square foot for its malls and outlets. Malls on their own sold for $677 per square foot. The REIT also signed approximately 900 leases that comprised more than 3 million square feet during the third quarter. Simon now has more than 10 million square feet and 3,100 leases through the first three quarters of the year.

Meanwhile, Simon malls’ occupancy reached 94.5 percent at the end of 3Q. It was an increase of 60 basis points (bps) compared to the second quarter and a 170-bps lift year-over-year, reports. The company’s average base minimum rent also increased for the fourth consecutive quarter to $54.80.

“This was an excellent quarter for our company with strong financial and operational performance,” Simon said in a release. “Based upon our results to date and our expectations for the remainder of 2022, we are once again increasing full-year 2022 guidance and raising our quarterly dividend.”simon property group,

Simon also showed no signs of concern about an economic slowdown during the holidays or next year. When asked about the scenarios, he said he is “unbelievably confident” that brick-and-mortar retail would continue to produce a solid return on investment “because physical retail is where the action is.”

“That’s where the return on investment is,” Simon said during the earnings call. “So even if we may slow down next year or even into the holiday season, I don’t think the growth from our existing business is going to slow down because the demand for new deals and space is there.”

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