The announcement on Friday that General Growth Properties had agreed to buy rival mall owner Rouse Company - which operates some of America's best-known shopping centres, including New York's South Street Seaport and Chicago's Water Tower Place - is the latest example of the consolidation that has swept the US shopping mall industry.

Early last week, Mills Corporation agreed to buy a 50 per cent stake in nine malls from General Motors' pension unit for more than Dollars 1bn.

And in June, Simon Property Group agreed to buy rival Chelsea Property Group for Dollars 3.5bn, after failing to acquire Taubman Centres in one of the most bitter US takeover battles of the past 18 months.

"We are seeing more and more real estate investment trusts buy each other to grow their portfolios and grow shareholder value," says Malachy Kavanagh, spokesperson for the International Council of Shopping Centers (ICSC). "Malls enjoy the highest sales per square foot of any property type."

As interest rates have fallen, demand for investment-quality real estate, especially malls, has risen.

"Malls are doing just fine and dandy," said Dale Reiss, head of the real estate practice at Ernst and Young.

"They have been one of the strongest sectors during the last few years.

As jobs have dried up and there has been a quasi-recession, the office market has been weak and the apartment market has been weak. But people kept spending and that has been in malls, so retail has been the fair-haired child for the last several years."

Also, malls have maintained relatively high occupancies and rents.

If General Growth's acquisition of Rouse Company goes ahead, it will become the nation's largest real estate investment trust (Reit), according to the National Association of Real Estate Investment Trusts.

The good news for investors is that the regional mall sector has been a strong performer.

Reits specialising in regional malls were up 13.4 per cent on average as of August 19 and are the best performing Reit sector this year, according to Nareit.

Last year, regional mall Reits rose 52.2 per cent and were the third-best performing Reit behind mortgage Reits and healthcare Reits.

The enclosed mall, an icon of the American retail landscape, was born in the 1950s. With the rise of the suburb and car culture, a new form of mall emerged, away from city centres. It was modelled after small town main streets but located indoors.

The first enclosed shopping mall, Southdale Center, opened in Edina, a Minneapolis suburb, in 1956. It had central air conditioning and heating and two department stores as anchors. The concept was an instant hit and malls soon sprung up in suburbs across America - a trend that critics say led to the "malling of America". According to the ICSC, there are 1,130
enclosed malls across the US.

Enclosed malls had their heyday in the 1970s and 1980s when dozens opened every year in response to the growing strength of the US consumer. But new construction has slowed in recent years, prompting the largest owners to look for alternative ways to enhance earnings, including acquisitions.

This year, as few as three malls are expected to open. In recent years, regional malls have lost customers to supermarkets,
discounters and speciality stores.

"These malls have been the main targets of 'de-malling' renovations," says Euromonitor International, the market research firm.

Today the trend is towards "lifestyle centres" - free-standing stores clustered around an open-air plaza that offer a mixture of movie theatres, stores, restaurants and residential and office development.

According to the ICSC, there are now more than 100 lifestyle centres in the US.

Financial Times