Thursday, July 07, 2016

Reis: Regional Mall Vacancy Rate increased in Q2 2016, Strip Mall Vacancy Rate declined

by Bill McBride on 7/07/2016 11:01:00 AM

Reis reported that the vacancy rate for regional malls was increased to 7.9% in Q2 2016 from 7.8% in Q1, and unchanged from Q2 2015. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined to 9.9% in Q2 2016 from 10.0% in Q1, and down year-over-year from 10.1% in Q2 2015. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist and Director of Research Ryan Severino:

The national vacancy rate for neighborhood and community shopping declined by 10 basis points to 9.9% during the second quarter. Although the rate of improvement is not yet accelerating, net absorption once again outpaced new construction. The vacancy rate for malls increased by 10 basis points to 7.9%.
...
Asking and effective rents grew by 0.4% and 0.5% respectively during the second quarter. Although this is a minor pullback from recent quarters, it is only noteworthy because rents have been growing so slowly. On a year-over-year basis, asking and effective rents having grown by just 2.0% and 2.1% respectively. These growth rates are just a tad slower than core inflation. That is weak by historical standards, but is certainly reflective of a market with an elevated vacancy rate. It is highly unlikely that vacancy will fall sufficiently low enough to engender more meaningful rent growth before the onset of the next recession.
emphasis added
Mall Vacancy Rate Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Currently the strip mall vacancy rate is declining slowly and remains at an elevated level.  The regional mall vacancy rate is moving sideways, also at an elevated level.

Mall vacancy data courtesy of Reis.