Build a Mall – Complete Guide (Costs, Construction & Financing)
December 24, 2019
If you want to build a mall, you’ll need the answers to many questions. For example, how much does it cost to build a mall? How much does it cost to build a small strip mall? What expertise do you need to build a shopping mall and how to build a strip mall? What’s involved if you want to build a shopping center?
This article addresses all of these questions and discusses shopping mall financing, including how Assets America® can help. We also answer some frequently asked questions about how to build a mall.
Reem Mall Construction Time Lapse – June 2018
How Assets America® Can Help
Assets America® can finance your shopping mall with loans starting at $20 million. There is virtually no limit to the amount of financing we can arrange. Importantly, we have decades of experience financing all sorts of shopping malls and high-end commercial projects.
Our deep network of private investors and banks can most often provide financing even when your bank turns you down. Don’t make a move until you speak with us first. We will be happy to confer with you on a confidential, no-obligation basis. So please call us at 206-622-3000 or simply fill out the form below and expect a very quick response.
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Types of Malls
Before discussing how to build a mall, it’s important at the outset to define the various types of malls.
Mall
A general term encompassing properties such as a shopping mall, shopping complex, strip mall, or pedestrian street.
Shopping Center/Mall/Complex
This is a series of one or more buildings containing shops, adjacent parking, and interconnected walkways. Usually, the shops are indoors. Shopping malls may contain entertainment and dining venues. They can range in size from neighborhood centers to super-regional centers.
Strip Mall
An open-air shopping center usually arranged in a single row of stores fronted by a sidewalk. Typically, developers build strip malls as a unit accompanied by suitable parking facilities. Many are separate from pedestrian connections and rely on cars and mass transit. Power centers are large strip malls.
Plaza
This is a marketplace, public square, or similar open space. It may include streets closed off to vehicular traffic.
Outlet Mall
A mall in which manufacturers sell their wares directly to the public, usually at discount prices.
How Much Does It Cost to Build a Mall?
It’s not cheap to build a mall. The national average is $24.9 million for a medium-sized shopping mall, not including land purchase and clearing. To build a mall, demolition may be necessary, and this will add significantly to the total cost.
A typical mall has four anchor stores, two floors, and 56,000 square feet. Naturally, mall sizes and costs vary greatly according to size, site conditions, construction techniques, tenants, amenities, and location.
Mall construction requires the participation of an owner/developer, architects, general contractor, and subcontractors. Typically, malls use “best” quality building techniques and materials in order to minimize bonding and insurance costs.
Of the average $24.9 million total cost, the breakdown is:
| Expense | Cost |
|---|---|
| Materials | $11.9 million |
| Labor | $9 million |
| Equipment | $1.2 million |
| Miscellaneous | $1.9 million |
The average construction costs are $442 per square foot, although costs range from $225 to $450 per square foot. These cost estimates assume that labor belongs to unions without mob control.
Non-unionized labor has the following national average costs:
| Profession | Average Hourly Wage |
|---|---|
| Excavators, masons, and carpenters | $70 per hour |
| Electricians | $65 to $85 per hour |
| Painters | $45 to $65 per hour |
| Plumbers | $20 to $35 per hour |
Breakdown of Costs
To calculate “How much does it cost to build a mall?”, account for the following types of typical costs:
- Acoustic ceilings, suspended
- Brick face, stucco, or stone exteriors
- Communication systems
- Concrete foundation
- Display fronts with aluminum/glass double doors, bulkheads, finished walls, and lighting
- Doors and partitions
- Floors covered with carpet and sheet vinyl
- Fluorescent lighting, recessed
- Gypsum-board interior walls
- HVAC equipment and suspended ducts
- Labor
- Office space and mezzanines
- Security and safety systems
- Six plumbing features per 4,000 square feet
- Stairwells, escalators, and passenger and freight elevators
- Steel roofs with plywood sheathing and five-ply insulation
Architect Costs
Typically, architects will consume about 17% ($4.23 million) of the total budget to build a mall. In return, you receive the following services:
- Develop/ascertain project budget
- Draft plans for proposed work
- Create schematics and floor plans
- Interface with structural engineers and governmental planning agencies
- Finalize all details for drawings, materials, and finishes
- Serve as or work with the project manager
- Obtain permits
- Advise about selection of contractors and bids
- Complete all documents necessary for construction
Contractor Costs
Without a doubt, the contractor is responsible for the daily management of the project. Typically, contractor cost comprises 14% ($3.49 million) of the total budget. In addition, a contractor might extract $3+ million in indirect fees and markups. Contractor tasks include:
- Procuring all materials and services
- Selecting and hiring subcontractors
- Collaborating with the architect and the owner to evaluate plans
- Pulling all permits for work and installation of utilities
- Overseeing all construction
- Providing final cleanup of the construction site
How Much Does It Cost to Build a Small Strip Mall?
Unsurprisingly, a small strip mall is less expensive to build. Usually, it consists of a street lined with attached stores and on-street parking. You don’t have to spend money on interconnecting walkways other than the main front thoroughfare. Nor do you have to build parking structures, although you certainly can if that is part of your plan.
There won’t be elaborate food courts and other amenities you would typically find in a shopping complex. You must choose what kind of tenants will be located at the strip mall and price your construction accordingly. Clearly, you may have to minimize costs if your mall comprises down-market stores. For example, these may include:
- Pawn shops
- Vintage clothing shops
- Dollar stores
- Resale shops
- Bail bonds providers
- Liquor stores
- Blood purchase services
- Dive bars
- Tattoo parlors
- Laundromats
- Discount shoe stores
- Food banks and soup kitchens
- Payday lenders and check cashers
- Walk-in injury lawyer storefronts
- Bakery outlets
- Animal pounds
- Teenage addiction counseling clinics
Clearly, your rental income projections must account for the types of tenants you attract. These projections may tempt you to cut corners during construction, but nevertheless, you must build to the minimum safety codes. Typically, a minimum-cost small strip mall might cost about $250/square foot to build.
How to Build a Strip Mall or Shopping Center
There are a series of steps you will need to build a shopping mall, including the following items.
1. Site Selection
You must choose the land upon which you’ll construct your mall. Naturally, you want a location that is easy to access, and not too far from a nearby center. Also, it should provide space for parking and not create local traffic congestion.
The location should be convenient for access by your targeted market. Will your targeted customers be able to afford shopping at the tenant shops at the mall? Frankly, some malls appeal to average-to-low-income customers, while others will market to the rich, educated elite.
Undoubtedly, another factor is age. Will you be targeting teenagers and young adults, or will you favor mature adults and seniors? Perhaps you’ll go after a mix of all types of customers, but you’ll need to consider the pros and cons.
A mall that appeals to everyone may appeal to no one. However, a mall that targets a slice of the consumer market may be limiting its traffic.
2. Characteristics and Amenities
Your mall plans may follow a theme and include amenities like restaurants and other service providers. Will the mall have something different or unique to attract customers? You should research existing malls to see how they address these issues. Clearly, you need to discover which approaches work and which don’t.
In addition, your research will include technical aspects such as tenancy mix, footfalls, best practices, and so forth. A major decision will be the size of the mall and the intended anchor tenants.
The branding of your mall depends on its tenants, characteristics, and amenities. These incur costs beyond construction, but your branding plans can influence how you build the mall.
For example, a mall with small discount stores looks quite different from one with upscale department stores and boutiques. Naturally, your construction budget might be much lower if your mall consists of down-market tenants. These might include dollar stores, used-book stores, furniture consignment shops, and charitable recycled merchandise stores.
There is no reason that this type of mall will be less profitable than an upscale mall. However, a down-market mall should minimize costs. This may include average-to-budget materials, non-unionized labor, and unskilled workers.
3. Operational Aspects
Your building plans should account for the special requirements of a mall. For instance, you may need to include special facilities to support mall security that operates 24/7. You might want to include a first-aid center to handle on-site injuries. You’ll also have to provide for cleaning and maintenance operations.
Some malls have on-site property managers and tenant recruiters. The extent to which your mall will have on-site support operations will most certainly affect the cost of construction.
Another operational aspect that affects construction costs is your IT & technology plans. New malls definitely favor high technology to deliver features like customer Wi-Fi and integrated security monitoring. This may require extra cabling and devices that add to the cost but pay for themselves over time.
Shopping Mall Financing
Some shopping mall developers may be self-financing from equity. That is, they use retained earnings to pay for new shopping mall construction. However, most mall projects require debt financing.
Frequently, a developer may choose to recruit investors. Clearly, this requires you to estimate a return on investment, break-even point, and payback period. Then you must decide how to attract investors who will allow you to run the project your way. You will need mechanisms to resolve disputes with minimal disruption.
Your budget is the starting point. You must conduct a feasibility study to verify that the budget is sufficient under various scenarios. To be clear, a sensitivity analysis tests your cost and revenue assumptions under positive and negative conditions.
The output is a series of pro forma balance sheets, P&L statements, cash flow statements, and financial ratios. Doubtlessly, investors may be interested in seeing all of this material before signing on to the deal. However, you might not want to share projections you judge to be unlikely.
You can potentially offload some of these concerns if you use a loan broker such as Assets America®.
Frequently Asked Questions
Are shopping malls a smart commercial property investment?
Yes, shopping malls can be an excellent property investment if you do your homework first. Substantial due diligence is an involved process that requires access to data and expert analysis. You must make sure you pay the right amount and receive the appropriate return on your investment.
How long does it take to build a shopping mall?
The time from initial concept to space leasing can take 2 to 5 years or longer. Obviously, if municipal financing is involved, multiply your time estimates several times. Tellingly, the American Dream Mall in the New Jersey Meadowlands took 16 years to go from concept to operation.
What’s the difference between a mall and a shopping complex?
Usually, a mall contains enclosed structures. Whereas a shopping complex may have open-air complexes in addition to enclosed structures. Indeed, both types of properties feature large parking facilities and must deal with traffic challenges.
What’s the difference between a plaza and a mall?
A plaza is usually an outdoor facility, although it may have a covered roof. Simply, plazas may be areas that allow for mobile vendors such as food trucks and flea markets. Most malls are indoor facilities, although they might have outdoor components as well.
What’s the difference between a mall and an outlet?
A mall usually has a wide mix of merchants. However, an outlet mall features the retail stores of manufacturers. Also, it may contain off-price merchandise from department stores. Consumers patronize outlet malls when they are looking for name brand merchandise at reduced prices.
Helpful Resources
- First, read this enlightening article from McKinsey & Company on The Future of Building Shopping Malls.
- In addition, you can read this Fodor’s article on the best shopping centers in the world if you’re looking for inspiring ideas to build a mall.
- Finally, there’s a Havard research article called Where Should We Build a Mall? The Formation of Market Structure and Its Effect on Sales.
Articles Related to Shopping Malls
- Complete Guide to Shopping Center Loans
- Should You Invest in Shopping Centers
- Commercial Loans: Complete Guide to Obtaining High-Dollar Loans
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- 5 Signs of a Well-Run Commercial Construction Project
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