NEW YORK — Simon Property Group, the biggest U.S. mall developer, plans to focus on market share next year “rather than develop new product,” Richard Sokolov, president and chief operating officer, said during a conference call
“We are very focused on defending market share,” he said. Relying solely on development for growth, given the sales environment, would be foolhardy, Sokolov said on “An Inside Look at the Mall” last week hosted by Smith Barney’s Retail and Real Estate Equity Research Fixed Income Research Group.
Although the real estate investment trust has five long-term developments in the pipeline to deliver in the U.S. in 2005, it will give equal attention to generating revenue using its existing infrastructure.
“There is a limit to how much retail space can open in any given market,” Sokolov said. “If you increase the moderate to better retail space by 20 percent [by adding a mall], and that market’s population and income is growing by 3 percent, where is that income going to come from?”
Chicago-based General Growth, Simon’s closest competitor in size, completed its $12.6 billion acquisition of The Rouse Co. in November. The Rouse deal added 40 million square feet of retail space to General Growth’s portfolio, including high-end shopping centers such as Water Tower Place in Chicago and Faneuil Hall Marketplace in Boston.
Simon’s “enhance, not grow” strategy allows for some risk-taking, and Sokolov is eager to try new concepts. He’s even willing to let space sit empty in the meantime. The company is 65 to 70 percent done renewing tenants with expiring contracts in 2005, but is choosing not to renew “a lot” of retailers because it wants to upgrade the tenant mix and space configurations in its centers, he said.
This is true for both big-box and specialty retailers, Sokolov said. Any fallout from the Kmart-Sears merger, for example, would allow Simon to divide the real estate and create new frontage, parking and entrance opportunities for existing tenants eager to expand.
In its luxury malls, Simon is focusing on finding one-of-a-kind storefronts for retailers that typically sell only from boutiques.
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Sokolov also hinted at a European development play, given the saturated U.S. retail market.