Marcus & Millichap

For Some Struggling Malls, Churches Offer Second Life

October 10, 2017

Neighborhood shopping centers battered by store vacancies are finding solace in churches.

As retailers consolidate and shrink the number and sizes of their stores, retail center landlords, especially in weaker markets, are being forced to consider a wider range of prospective tenants that might not fit the conventional retail mold. Among them: houses of worship.

“Having a church becomes an asset because it creates a mixed-use space,” said Rodney Arnold, pastor at OneLife Church, based in Powell, Tenn. The church leases space both in Powell Place Shopping Center and at a building near Knoxville Center Mall in Knoxville.

Until recently, property owners have turned mainly to theaters, restaurants, medical and wellness clinics, and bowling alleys to fill space formerly occupied by retailers that have been plagued by the shift to online shopping and changing consumer tastes.

Churches usually weren’t in the mix. Shopping center owners prefer tenants that draw foot traffic on a daily basis and often consider churches to be second-tier tenants because they aren’t typically open all week.

What’s more, if rents aren’t paid, landlords might find it harder to evict a church than another tenant.

But in weaker markets where vacancies are higher, it is more difficult for landlords to find complementary retailers, and churches are becoming palatable options.

“Churches are in the category of secondary uses for retail centers like charter schools and government offices,” said Lori Schneider, senior managing director at commercial real-estate firm Marcus & Millichap. “But depending on the amount of space they occupy, they could change the profile of the center.”

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