The largest U.S. mall owner is optimistic about demand for mall space, despite the possibility of a looming recession.
In the first quarter of 2023, Simon’s occupancy was 94.4 percent, up 1.1 percent from the same quarter of 2022. Simon signed more than 1,200 leases for more than 5.9 million square feet in the quarter and retailer reported sales per square foot was $759 in 2022, up 3.3 percent over the prior year.
“Tenant demand is excellent, and brick-and-mortar stores are where shoppers want to be,” said president and CEO of Simon Property Group David Simon in a Tuesday call with analysts. “And even with the economic uncertainty, we are running ahead of our internal plan.”
If economic conditions remain stable, the company is in good shape to meet or surpass its 2019 occupancy level of 95.1 percent, Simon said.
“This is kind of in the face of a lot of economic uncertainty, but demand really has not changed one iota,” Simon said, calling out strong demand in sectors ranging from luxury to big box stores. Simon said he expects this strong lease demand to continue, though noted that future results will depend on broader economic trends.
Overall, Q1 net income attributable to common stockholders was $451.8 million, or $1.38 per diluted share, as compared to $426.6 million, or $1.30 per diluted share in 2022. Funds from operations (FFO) was $1.026 billion, or $2.74 per diluted share, as compared to $1.015 billion, or $2.70 per diluted share in the prior year.
Simon, who has been particularly bullish about physical retail, also said a return to tourism has positively impacted certain tourist-focused centers in the company’s portfolio. Foot traffic at malls was up 105.5 percent in March 2023 over March 2022 and was also up in mills and outlets.
“It’s really going to be the external environment that could slow this down,” he said, adding that he doesn’t expect to see an outright recession, but rather a “regional recession” that could impact specific states and markets more than others.
He called out Florida, Texas, Nevada and Georgia as strong markets that will likely continue to grow.
“I don’t see them going into a recession,” Simon said. “If there is one, we’ve always heard, it’s going to be a regional one.”