WSJ.com - Sobered by store closings and the rise of online shopping, owners of U.S. shopping centers are filling space and drawing visitors by turning to unusual tenants like gun ranges and go-cart tracks. Mall giant Simon Property Group Inc. opened an aquarium in July at its Grapevine Mills mall near Dallas. Real-estate brokerage Jones Lang LaSalle Inc. put a fencing academy in a former Old Navy store in Florida's Tallahassee Mall, and a community theater on the lower level of a former Boscov's store in Harrisburg, Pa. Aqua Tots Holdings LLC, a business that teaches youngsters to swim, has expanded to 14 locations in Arizona, Texas and Georgia and has 10 more on the way, nearly all in former retail shops. Jumpstreet, an indoor trampoline facility, is buying or leasing former grocery stores, filling them wall-to-wall with trampolines and charging patrons for hourly access. Perhaps the most unusual use of a former big-box store is William James's Arms Room gun shop and shooting range, which opened last year in a former Circuit City store south of Houston. Mr. James spent nearly $5 million to buy the 20,000-square-foot space and convert it into a shooting range, a price he considered a bargain compared with building from scratch. The Arms Room offers handgun training courses in addition to traditional shooting practice, all in a popular shopping center anchored by Target Corp. and Home Depot Inc. stores.
"It was sort of providential," Mr. James said in his Arms Room office, surrounded by antique swords and modern firearms. "I never dreamed of a place like this." Rising retail vacancies, and loosening rent demands from landlords at struggling shopping centers, are creating opportunity for tenants previously housed in community centers, industrial parks and home basements. "In the past, we've typically been in industrial parks because of the [low] cost per square foot," said Howard Picker, founder of Speed Raceway, which is preparing to open indoor go-cart tracks next year in former big-box stores in Colorado, Pennsylvania and New Jersey. But retail landlords "are coming down on price and more willing to work with tenants like us," he said. The proliferation of "nonretail" tenants comes as traditional stores cede ground in U.S. shopping centers because of constrained consumer spending and decades of retail overbuilding in the U.S. Real-estate research company CoStar Group Inc. examined a sample of roughly 830 million square feet of retail space—6.8% of the U.S. total—and found that entertainment-themed tenants like movie theaters and laser-tag complexes expanded their collective square footage in U.S. shopping centers by 2.25% since 2009 while service-themed tenants like schools and health clubs grew at a 3.65% clip. Conversely, retailers and restaurants in that period each reduced their collective square footage by nearly 1%.
Landlords are embracing unusual tenants as a way to continue drawing visitors to their shopping centers, even if those patrons aren't necessarily coming to shop. A little extra traffic generated by a gym or a trampoline center is better than an empty storefront that draws no one, they say. "They're good users, and they pay good rent," says David Henry, chief executive of Kimco Realty Corp., which owns stakes in 946 shopping centers world-wide. "In many cases, they are complementary" to the retailers in a given center, he said. Nontraditional tenants, in many cases, though, don't pay as high a rent as major chains would pay. What's more, nonretail tenants often don't pay percentage rents, a form of bonus rent that retailers pay from a small percentage of their sales when they exceed a certain threshold. Even top performing mall companies—like Simon, which reported a 19% rise in earnings Tuesday—are looking at restaurants, entertainment and other nonretail uses as a hedge against the drain from online shopping. Glimcher Realty Trust purposefully filled 25% of its upscale Scottsdale Quarter mall near Phoenix with restaurants such as Stingray Sushi and services like Drybar, a salon that specializes in blow drying women's hair. "She can't go out to lunch and have a salad and a glass of wine with her girlfriends online," Glimcher Chairman and CEO Michael Glimcher said, referring to the mall industry's coveted female shoppers.
Struggling shopping centers, like the Tallahassee and Harrisburg malls, meanwhile, are signing nonretail tenants because no one else is lining up for the space. But adding a tenant with limited potential to bring shoppers to the rest of the center—like classrooms or a church—often isn't popular with existing tenants. The move can be seen as giving up on the center as a retail venue. The Arms Room gun range near Houston had a mixed reception. Mr. James's attorneys advised him to seek written statements from Target and Home Depot declaring that they didn't object to his business opening in their shopping center. Home Depot agreed, but Target declined, Mr. James said. (Target declined to comment). Later, representatives of PetSmart Inc. thanked him for boosting the center's customer traffic, he said. There are no immediate plans for additional Arm Room locations. Jin Dong, the manager of a Mattress Giant store that shares a wall with the Arms Room, is one of the gun range's happy neighbors. "People do come in here with guns, and that's kind of weird. But they have brought a lot of traffic. It's way better than nothing," he said. "I'll tell you one thing, I don't have to worry about getting robbed, that's for sure."
