The open-air shopping center outlived the enclosed mall because its economics survived the internet and the mall's did not. The story is usually told as taste: shoppers wanted sunlight and a walkable Main Street instead of a climate-controlled box. Taste is the surface. Underneath sits a cost structure. An open-air center carries lower occupancy cost for its tenants, lower capital expense for its owner, and far less common area to insure, heat, and staff. When e-commerce took the marginal, easily-shipped purchase, the format with the thinner cost load was the one that kept its tenants solvent. The open-air center did not beat the mall on charm. It beat it on cost.
Key Takeaways
U.S. shopping center vacancy hit a record low near 5.4% in 2024 and sat around 5.9% in early 2026, below the roughly 7.4% long-run average, according to Cushman & Wakefield. Enclosed regional malls run materially higher.
Green Street Advisors has estimated that 30 to 35 percent of existing U.S. malls will ultimately close, and that mall values fell roughly 45 percent from their 2016 peak.
Open-air REITs report record occupancy. Kimco Realty ended 2025 at an all-time-high 96.4 percent portfolio occupancy; Regency Centers held above 96 percent through the year.
Neighborhood-center tenants typically run occupancy costs of 8 to 9 percent of sales, versus 9 to 16 percent for regional-mall tenants, per retail underwriting research from Adventures in CRE and Wealth Management.
The open-air center wins on the balance sheet: no enclosed concourse, no structured parking to maintain, and direct-access storefronts that cut common-area load.
Why did the enclosed mall lose and the open-air center win?
The enclosed mall lost because its cost structure assumed a captive shopper who no longer exists. A mall monetizes footfall through department-store anchors that draw traffic past small-shop tenants. When anchors closed and browsing moved online, the mall kept its fixed burden, enclosed common area, HVAC, security, and often structured parking, without the traffic that justified it.
Green Street Advisors has held for years that the United States is over-retailed, carrying more square feet per capita than any comparable country. Its analysts have estimated that 30 to 35 percent of existing malls will eventually close, and that mall asset values dropped roughly 45 percent from the 2016 peak. The open-air center never carried that overhead. Its tenants face the street directly, parking is at grade, and there is no interior concourse to condition. The anchor tenant at an open-air center is often a grocer or a discount box that drives weekly, non-discretionary trips, the kind of demand e-commerce has been slowest to erode.
How do the economics of an open-air center beat an enclosed mall?
An open-air center beats an enclosed mall on three lines that compound: occupancy cost, capital expense, and vacancy. Lower occupancy cost keeps tenants above their sustainable rent line. Lower capex means less owner cash trapped in the asset. Lower vacancy means more of the rent roll is actually paying. Each advantage is modest alone. Stacked, they separate the two formats.
Metric | Open-air center | Enclosed mall |
|---|---|---|
Tenant occupancy cost | ~8-9% of sales (neighborhood/community) | ~9-16% of sales (regional mall) |
Sales per square foot | Typically lower gross productivity | Higher gross at productive malls, offset by higher cost load |
Owner capex intensity | Low: at-grade parking, direct-access storefronts, no interior concourse | High: enclosed common area, HVAC, security, structured parking |
Vacancy (recent) | ~5-6% (Cushman & Wakefield) | Materially higher; weakest malls in double digits |
Occupancy cost is the number that decides tenant survival. Median occupancy costs run 8 to 9 percent of sales at neighborhood centers and 9 to 16 percent at regional malls, per underwriting guidance published by Adventures in CRE and Wealth Management. A productive mall can post higher tenant sales per square foot, but that gross productivity is eaten by higher rent, common-area maintenance, and mall marketing charges. The lifestyle center and the power center capture much of the same tenant demand at a lower cost load, which is why leasing has migrated toward them.
What does the cost gap look like for a single tenant?
For one tenant, the format decides whether the location is sustainable or a slow bleed. Consider an apparel retailer doing 500 dollars in sales per square foot. Its total occupancy cost, base rent plus CAM plus any marketing fund and percentage rent, determines whether it renews or dark-stores the box at lease end.
Worked example, same 500 dollars per square foot of sales:
Open-air center: total occupancy cost of 45 dollars per square foot. Occupancy cost ratio = 45 / 500 = 9.0 percent. Inside the sustainable band.
Enclosed mall: total occupancy cost of 80 dollars per square foot, once CAM, the marketing fund, and percentage rent are added. Occupancy cost ratio = 80 / 500 = 16.0 percent. At the ceiling.
To hold a healthy 10 percent occupancy cost ratio in that mall, the tenant would need 800 dollars per square foot in sales, a 60 percent lift over what the same store produces open-air. When the traffic that once justified the mall's rent stops arriving, the tenant does not renew. Multiply that decision across an anchor and forty inline shops, and the mall's rent roll unwinds while the fixed cost of the enclosed building stays put. The open-air center never asked its tenants to clear that bar.
Which open-air formats are absorbing the demand?
Grocery-anchored neighborhood centers, power centers, and lifestyle centers are absorbing the demand that left enclosed malls. CBRE's outlook has pointed to grocery-anchored centers, neighborhood and strip centers, and high-income suburban corridors as the formats positioned to outperform on occupancy and rent, while weaker malls and older power centers lag on higher capital needs and slower backfill.
The open-air REITs show it in their filings. Kimco Realty grew portfolio occupancy to a record 96.4 percent at year-end 2025, with small-shop occupancy at an all-time-high 92.5 percent and a signed-but-not-open pipeline representing roughly 390 basis points of embedded future rent. Regency Centers held above 96 percent occupancy through 2025 with mid-single-digit same-store NOI growth. ICSC has projected retail sales growth around 3.5 percent for 2025, and the momentum has run toward open-air and mixed-use, including enclosed malls being torn open and rebuilt as open-air centers. The format did not just survive the mall. It is being built on the mall's grave.
Frequently Asked Questions
Is an open-air shopping center the same as a strip mall?
No. A strip center is one open-air format, typically a small unanchored or convenience row of shops. Open-air is the broader category that also includes grocery-anchored neighborhood and community centers, power centers, and lifestyle centers. They share at-grade parking and direct-access storefronts, not a size or tenant mix.
Why do enclosed malls have higher vacancy than open-air centers?
Enclosed malls depend on department-store anchors to generate the foot traffic that supports inline rents. As anchors closed and discretionary browsing moved online, malls kept high fixed costs, enclosed common area, HVAC, and security, without the traffic, pushing occupancy costs above sustainable levels and vacancy up.
Are all enclosed malls failing?
No. A minority of dominant, high-sales-per-square-foot malls in dense, affluent trade areas continue to perform. Green Street's estimate that 30 to 35 percent of malls will close implies a majority survive, but the survivors are increasingly reconfigured with open-air components, dining, and experiential anchors rather than pure enclosed retail.
Does lower occupancy cost always mean a better investment?
Not on its own. Occupancy cost measures tenant health, not owner return. But a lower, more sustainable occupancy cost ratio means tenants are likelier to renew and less likely to fail, which underpins durable cash flow. That durability is a core reason open-air centers have re-rated relative to enclosed malls.
Conclusion
The open-air shopping center outlived the enclosed mall because it asked less of everyone in the deal. Tenants clear a lower occupancy cost bar, so they renew instead of going dark. Owners carry less capital in structured parking and enclosed concourse, so the asset absorbs a downturn without bleeding. Buyers underwrite a rent roll that is nearly full at record-low vacancy rather than one hollowed out by anchor departures. Frame the mall's decline as changing taste and you miss the mechanism. The format that won is the one whose cost structure survived the shift in how Americans buy. For the operator underwriting retail today, the lesson is narrow and durable: the cheaper cost load is the more defensible asset, and it will keep compounding that advantage long after the debate about ambiance is over.