Diversify Your Portfolio Through 3 Massive Types of Shopping Centers

Shopping centers fall into three main categories: enclosed malls, power centers, and neighborhood centers. Each type varies in size, layout, and tenant mix, which affects performance, risk, and overall investment strategy.

The words “mall” or “shopping center” evoke different images for different shoppers. Some will imagine the local mall they used to hang out at in the 90s. Others will picture the strip mall with the Macy’s they always shop at, and someone else will picture the neighborhood center with the CVS, where they get their family’s prescriptions filled.

 All of these are accurate depictions of shopping centers. The category is varied, with each customer base having different needs and expectations. Each type has specific advantages, from enclosed malls to neighborhood centers. They differ by size, location, and layout.  

For investors, these differences matter, and learning the right vocabulary means knowing the difference between a good investment and a risky one.

This article will examine these retail formats in depth, highlighting their defining characteristics, operational distinctions, and roles within the broader retail ecosystem. 

3 Main Varieties of Malls and Shopping Centers 

1. Enclosed Malls: Large-Scale Retail Environments 

Imagine a world where shopping, dining, and entertainment converge under one roof. Welcome to the enclosed mall! Fundamentally, enclosed malls are significant retail developments characterized by their expansive size and indoor layout.

Key attributes: 

• Scale: Typically ranges from 300,000 to over 1,000,000 square feet
• Land Utilization: Occupy substantial parcels, often 30 to 100 acres
• Structural Design: Fully enclosed, climate-controlled environments
• Tenant Configuration: Anchored by major department stores, complemented by numerous smaller retailers

Enclosed malls are the quintessential shopping destinations that have defined American retail for decades. They are distinguished by inward-facing layouts, with retail spaces primarily opening onto interior corridors. This design creates a controlled shopping environment, insulated from the weather, and supports extended visitor engagement.

The tenant mix in enclosed malls is strategically curated. Anchor tenants, like Macy's, JCPenney, and Dillard's, occupy perimeter positions, serving as main draws and waymarkers with their large footprints. Beyond anchors, walkways feature small specialty stores, from fashion boutiques to gift shops, offering diverse shopping experiences.

Enclosed malls often include amenities such as food courts, sit-down restaurants, entertainment venues, and common areas. These features support the mall's role as a multi-purpose destination. These spaces offer an escape from the mundane. Enclosed malls invite visitors to lose themselves in a day of retail therapy, entertainment, and dining.

Why This Matters to Investors: While some might view enclosed malls as a relic of the past, they can be an incredible financial opportunity for certain investors with specific needs. Enclosed malls offer more amenities and act as temperature-controlled one-stop shops in a culture where access and variety are highly valued. 

When investing in a closed mall, investors should ensure the location is a high-traffic area, features at least a couple of anchor tenants, and offers a diverse mix of local retailers and specialty stores. 

2. Power Centers: Open-Air Retail Clusters 

Power centers represent a distinct retail format, characterized by their open-air layout and focus on larger-format stores.

Key Attributes: 

• Scale: Typically spans 150,000 to 200,000 square feet
• Structural Design: Open-air format with outward-facing storefronts
• Tenant Composition: Anchored by multiple "junior box" retailers, supplemented by smaller establishments

Power centers are named for their ability to bring major retailers together in one location. This creates a powerful draw for consumers. Stores such as TJ Maxx and Kohl's occupy 20,000 to 30,000 square feet and offer products at competitive prices. These stores serve as the center's primary consumer attractions.

TJ Maxx, Best Buy, Kohl's, and other “junior box stores” anchor these centers and serve as their primary draw. Power centers range from 20,000 to 30,000 square feet and offer a treasure trove of products at competitive prices.

Power centers have smaller retailers and eateries on the perimeter or in standalone buildings, creating a symbiotic relationship. Junior boxes draw crowds, while smaller stores offer variety and convenience. Stores face outward for easy access to parking. This setup benefits consumers looking for targeted shopping and a one-stop retail experience.

Why This Matters to Investors: Power centers, while featuring large-name tenants like enclosed malls, serve a different need in their community. 

The open structure serves shoppers who want quick access to major retailers or department stores without going through an enclosed mall. If you invest in a power center, ensure the area has ample parking and several anchor stores, including grocery and retail options. These factors often determine whether a power center succeeds or fails.

3. Neighborhood Centers: Community-Focused Retail Hubs 

Last but certainly not least, the third category is neighborhood centers. These areas represent smaller-scale retail developments designed to serve the immediate local community.

Key Attributes: 

• Scale: Generally under 150,000 square feet
• Location: Typically situated within residential areas
• Focus: Emphasis on convenience and daily necessities

These smaller-scale retail hubs offer everyday essentials and local flavors that showcase an area's offerings. These centers usually mix national chains with local businesses. While some familiar names may appear, the atmosphere is more local, with family-owned stores next to well-known chains, reflecting community needs.

Neighborhood centers, like power centers, have open-air layouts with outward-facing stores but are smaller and integrated into residential areas. They are not for full-day shopping, but they support local routines and economies by offering essential goods and services, helping small communities, and allowing local businesses to coexist with national retailers.

Why This Matters to Investors: As the name suggests, neighborhood centers are ideal for areas with heavy local traffic and a walkable layout.

If you choose to invest in a neighborhood center, ensure it is located in a highly walkable area, features retailers that cater to locals' everyday needs, and offers an intimate open-air experience.

Choosing Your Retail Adventure 

Each type of shopping center (enclosed malls, power centers, and neighborhood centers) fulfills a specific role in the retail ecosystem:

• Enclosed malls offer a comprehensive, climate-controlled shopping environment suitable for extended visits and diverse retail needs.
• Power centers provide efficient access to multiple category-dominant retailers, catering to consumers seeking value and variety in specific retail segments.
• Neighborhood centers serve immediate community needs, offering convenience and essential services near residential areas.

Understanding these distinctions is crucial for various stakeholders in the retail sector. Each format presents unique opportunities and challenges, influenced by location, target demographic, and evolving consumer preferences.

These shopping center formats may undergo further adaptations as the retail landscape evolves. Yet, the fundamental characteristics and roles within the broader retail ecosystem remain significant. They are vital factors to consider in strategic retail development and investment planning. 

Understanding the unique benefits of each shopping center type, based on its location, size, and tenant mix, is crucial for making informed decisions when considering real estate investments. 

As an investor, it is important to understand the types of malls that you are investing in when choosing a mall investment firm to work with. The best firms are those that are strategic in the shopping centers they buy, seeking to maximize their returns as investors.