Thursday, January 04, 2018

Reis: Mall Vacancy Rate unchanged in Q4 2017

by Bill McBride on 1/04/2018 10:12:00 AM

Reis reported that the vacancy rate for regional malls was 8.3% in Q4 2017, unchanged from 8.3% in Q3, and up from 7.8% in Q4 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 10.0% in Q4, unchanged from 10.0% in Q3, and up from 9.9% in Q4 2016. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Economist Barbara Byrne Denham:

The retail real estate statistics camouflage the changes in the retail sector. Although the vacancy rate was flat for the quarter and the year, new tenants including grocery stores and gyms are taking space formerly occupied by bankrupt businesses such as Kmart. At the same time, some retail space is shutting down entirely or getting converted to other uses. Rent growth has been low but still positive throughout 2017.

New construction of 1.5 million square feet was the lowest level of completions since 2013. Net absorption of 1.9 million square feet was the highest since the first quarter. Asking rents increased 0.5% to $20.85 per square foot. This increase amounts to $0.10 per square foot. The effective rent increased 0.5% as concessions are not as significant in retail real estate as they are in the apartment market. Asking and effective rents have increased 1.8% and 1.9%, respectively, since the fourth quarter of 2016 and less than 4.0% since the end of 2015.
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.

Although unchanged in Q4, recently both the strip mall and regional mall vacancy rates have increased from an already elevated level.

Mall vacancy data courtesy of Reis.a>