LOW RENTS AND WEIRD 'STORES' AT THE MALL

Shoppers have long been able to grab lunch, get a haircut, or catch a movie at the mall. But the recession's high commercial vacancy rates are bringing in unconventional tenants that offer more unusual fare.

While the outdated Crestwood Court mall in St. Louis awaits a renovation, it has filled empty stores with nonprofit arts groups that pay rents of just $50 to $100 a month. The Genesee Valley Center in Flint, Mich., now houses a branch of the for-profit University of Phoenix. And at the Altamonte Mall in Altamonte Springs, Fla., a tattoo parlor has replaced the former tenant--a skateboard apparel shop. "With national tenants scaling back stores, we have an opportunity for smaller mom-and-pop businesses," says Chris Molho, an assistant general manager at Altamonte. "We're trying to find new ways to bring customers to the mall."

They need to: According to commercial real estate research firm Reis, mall vacancy rates are at record highs. For the third quarter of 2009, they rose to 8.6% at enclosed malls, the highest since the firm began keeping records in 2000. Empty retail space at open-air strip malls rose to 10.3%, the highest rate since 1992.

Reis retail sector analyst Eric Mingione says the nontraditional tenants filling the vacancies include churches, schools, and small retailers that were "once priced out" of mall space. (Also more prevalent this holiday season: pop-up stores. Toys "R" Us is opening 80 of these temporary outlets in malls and shopping centers.)

Not all malls are making creative use of vacant shops, says Greg Maloney, CEO of the retail practice at commercial real estate firm Jones Lang LaSalle. Maloney says the rise in nonprofit and mom-and-pop tenants is mostly in "C" and "D" grade malls, those with the lowest sales per square foot. Such nontraditional tenants pay less, he says, but often agree to restrictive terms, such as giving management the right to terminate if a better-known retail tenant surfaces. If current economic trends continue, Maloney says, malls could return to what has worked for them in the past: ice hockey rinks, car dealerships, and grocery stores. "We used to have them in the '60s and '70s, but we pulled them all out," he says. "Now we're looking at them again."