The Journal of Real Estate Finance and Economics

, Volume 48, Issue 1, pp 16–56

Expansions and Contractions of Major US Shopping Centers

Authors

    • School of Business AdministrationUniversity of Connecticut
  • Katsiaryna Salavei Bardos
    • Dolan School of BusinessFairfield University
  • Tingyu Zhou
    • School of Business AdministrationUniversity of Connecticut
Article

DOI: 10.1007/s11146-012-9382-z

Cite this article as:
Clapp, J.M., Bardos, K.S. & Zhou, T. J Real Estate Finan Econ (2014) 48: 16. doi:10.1007/s11146-012-9382-z

Abstract

We analyze the determinants of expansions and contractions of shopping centers using a unique dataset of property level data for shopping centers in eleven metropolitan areas over the period from 1995 through 2005. We find that shopping centers with large operating costs are less likely to expand and are more likely to contract. Higher expected revenue per square foot increases the likelihood of expansion and decreases the likelihood of contraction. For small shopping centers the decision to change gross leasable area (GLA) is largely driven by potential revenue, while the decision to change the number of stores is largely a function of cost. We find some support for Grenadier’s theory that a larger number of competitors reduces the value of option to wait and increases the likelihood of both expansion and contraction. The market share of competitors reduces the likelihood of increasing the number of stores as suggested by the theory of strategic positioning. Our hypotheses best explain contraction decisions of large shopping centers and expansion decisions of small shopping centers. We find that both expansions and contractions of GLA are less likely for large shopping centers in MSAs with greater uncertainty about real estate prices, indicating that the option to delay has value. Moreover, small centers are significantly less sensitive to cost and revenue; since small centers are likely to have greater idiosyncratic risk than large; this provides indirect evidence for a significant delay option.

Keywords

Real optionsPut and call optionsGame theory and strategic exercisesShopping centersCompetition and entry deterrenceCommercial real estate

Abbreviations

GLA

Gross leasable area

GFC

Global financial crisis

HVAC

Heating ventilation, and air conditioning

WAMS

Weighted average market share within a trade area

WATS

Proxy for revenue per square foot of retail space

NPV

Net present value

GMM

Directory of major malls

CAM

Common area

MSA

Metropolitan statistical area

OMB

The Office of Management and Budget

GIS

Geographic information system

ICSC

The International Council of Shopping Centers

Copyright information

© Springer Science+Business Media, LLC 2012