Tuesday, April 04, 2017

Reis: Mall Vacancy Rate mostly unchanged in Q1 2017

by Bill McBride on 4/04/2017 12:41:00 PM

Reis reported that the vacancy rate for regional malls was 7.9% in Q1 2017, up from 7.8% in Q4, and up from 7.8% in Q1 2016. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was 9.9% in Q1, unchanged from Q4, and unchanged from 9.9% in Q1 2016. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Economist Barbara Byrne Denham: Retail Vacancy Holds Steady at 9.9%; Rents Increase 0.3% in the Quarter. Effective rents decline in 19 metros across the U.S. while 25 see vacancy rate increase.

Despite dire reports of store closures in major brands across the country, the overall retail real estate statistics recorded very little change in the quarter as the neighborhood and community shopping center vacancy rate held steady at 9.9%, unchanged from year-end 2016 as well as from the first quarter of 2016. The average national asking rent increased 0.3% in the first quarter while effective rents, which net out landlord concessions, increased 0.4%.

Vacancy stayed flat in the quarter due to very low new retail construction. At 796,000 square feet, construction was the lowest since 2011. Net absorption, or the growth in occupancy, was also low at 1.25 million square feet.
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, both the strip mall and regional mall vacancy rates are mostly moving sideways at an elevated level.

Mall vacancy data courtesy of Reis.