Nearly half of U.S. malls have both Sears and J.C. Penney as anchor tenants. Above, the 1963 opening of a Sears at a mall in Lakewood, Colo. Denver Post/Getty Images
NORFOLK, Va.—With J.C. Penney Co. and Sears Holdings Corp. racing to close stores, America's weakest malls are being pushed to the brink. Nearly half of the 1,050 indoor and open air malls in the U.S. have both of those struggling chains as anchor tenants, according to real-estate research firm Green Street Advisors. Of those malls, nearly a quarter are struggling with sales below $300 per square foot and vacancy rates above 20%, meaning they will have a hard time finding new tenants if old ones leave.
For an already-weakened mall industry, the negative turn for two once-reliable anchors is promising more stress at a time when the Internet is steadily stealing traffic. And the pressure is only growing. Sears Chief Executive Eddie Lampert this week said he plans to close more stores to help return the company to profitability. Vacancy rates rose and sales plunged at the Gallery at Military Circle, about 5 miles from downtown Norfolk, Va., after the Sears store closed its doors two years ago. Eventually the mall's owner missed multiple payments on its debt. Remaining retail tenants worry about what will happen when the Penney store closes this month, darkening another corner of the 44-year-old property.

J.C. Penney Store Closures

See a table of locations closed or slated to be closed in 2014.
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Bruce Van, who manages Gent's, a locally owned boutique specializing in men's suits and fedoras and Sunday church clothes, said foot traffic fell by more than half after the Sears closed. "When J.C. Penney goes out in May, it's going to be bad," said Mr. Van, who is also pastor at Rivers of Life Fellowship in Hampton, Va.
The first U.S. indoor mall opened in Edina, Minn., in 1956, and construction peaked in the 1980s. Only six new malls have been built since 2010, according to CoStar Group, a provider of commercial real-estate information. Meanwhile, the number of "dead malls," those with vacancy rates over 40%, has nearly tripled since 2006 to 74 properties.The fate of the mall business matters, because even as the industry struggles, it remains an important source of economic activity.
Sales per square foot at the nation's malls grew just 2.6% last year—their slowest pace since 2009, according to International Council of Shopping Centers. Vacancy rates are stubbornly high, at an average of more than 8% at regional malls, not far off a 2011 peak in of 9.4%, according to data company Reis Inc."Just because people are making fewer trips to the mall doesn't mean they're spending less," said Jess Tron, a spokesman for the ICSC. Mr. Tron said that malls are trying to reinvent themselves by adding entertainment like indoor golf courses and higher-end restaurants, as well as services such as same-day delivery.
Still, it is tough to reverse such high vacancy rates when large anchor-tenant retailers like Sears and Penney are closing stores and others like Macy's Inc. M +0.68% are opening fewer locations. Penney, which racked up $2.4 billion in losses over the past two years, plans to close 33 of its stores, most of them in malls. Sears, with losses of $2.3 billion over the same period, has closed 116 of its full-line Sears stores since 2010. Penney and Sears declined to comment. To be sure, the exit of a troubled retailer can create an opportunity for stronger malls to find healthier tenants. But it is a different situation for struggling malls. And the potential damage from losing an anchor tenant is especially high in malls that have both Penney and Sears as tenants, said Gary Balter, a retail analyst with Credit Suisse."If one of them goes, it almost forces the other one out, because the mall just won't get enough traffic," Mr. Balter said.
The exit of an anchor can cause other stores to leave or renegotiate their leases, contributing to a spiral of declining traffic and investment. At the Gallery at Military Circle, the cavernous, 128,000-square-foot space once occupied by Sears remains empty. "For Lease" posters dot the windows of other darkened storefronts.The mall's situation is already tenuous. In November, and again in February and April, Thor Equities LLC, its owner, missed payments on a $53 million securitized loan, and Thor is in talks to restructure the debt, according to Trepp LLC, a company that collects data on real-estate debt.
The Gallery is hanging on to its other anchors—Macy's at the north end and an 18-screen Cinemark Holdings Inc. movie theater on the south. A Macy's spokesman said the retailer has no plans to leave. Cinemark didn't return calls seeking comment. At the Southlake Mall in Morrow, Ga., after the Penney there closed in June 2011, a number of national-chain tenants had their rent payments reduced, real-estate executives said. The mall's total sales fell to $58 million in January from $60 million in the year Penney closed as vacancies rose.
Several retailers at the mall said their sales have fallen by 30% since Penney left. "J.C. Penney brought people to the mall," said Joseph Nguyen, who operates a jewelry-repair kiosk near the food court and was one of the retailers whose sales fell off. Southlake occupied what was considered prime real estate in suburban Clayton County when the property was built just off Interstate 75 in 1976. Housing developments were springing up as the city expanded southward, bringing in new residents and eager shoppers. Over the past decade, however, Southlake's fortunes have turned. Newer shopping destinations in neighboring Henry County pulled customers away. Clayton County lost jobs when a nearby Ford Motor Co. plant closed in 2006. The mall took a further hit when Clayton County dropped bus service two years ago.
Southlake lost its first anchor in 2003, when Macy's closed one of its two stores at the mall. Unable to find another retail tenant, General Growth Properties,which bought the mall in 1997, turned the space into offices and a convention center. General Growth filed for Chapter 11 bankruptcy protection in 2009 and emerged in 2010. A year later, Penney left Southlake mall. While the mall's occupancy rate has remained above 90%, Southlake has lost several national players, including The Limited and Gap  clothing chains and the Chick-fil-A fast-food restaurant."Two anchors aren't enough to draw people to the mall," said Michelle Laidig, who has worked at Southlake for 25 years. "The mall used to be a destination. Now the locals just come here to return items they bought at other malls."
The future may be turning around. Vintage Real Estate LLC, which acquires and redevelops underperforming malls, bought Southlake in April for an undisclosed price and plans to invest $3 million to revitalize the property. "We talked to every tenant," Vintage Chairman Fred Sands said. "We found out how they are doing and what the facility needs."Mr. Sands said he is negotiating with new restaurants for the food court and is interviewing tenants to take over the former Penney space.
The chairman disputes the idea that the mall was hurt by Penney's closing. Sales excluding newly opened or closed stores have held steady at roughly $320 per square foot since 2011, according to documents Mr. Sands provided. Lost business from Penney was offset by increased sales from the mall's 16 shoe retailers, including Foot Locker and Athlete's Foot, he said. RaeQuel Fagin, a 20-year-old-restaurant worker who met a friend at the food court on a recent Tuesday afternoon, said the mall was a good place to come for sneaker releases, but not for much else."I wouldn't say this is where I would come if I felt like shopping," Ms. Fagin said.