Friday, March 30, 2018

Reis: Mall Vacancy Rate increased slightly in Q1 2018

by Bill McBride on 3/30/2018 09:47:00 AM

Reis reported that the vacancy rate for regional malls was 8.4% in Q1 2018, up from 8.3% in Q4 2017, and up from 7.9% in Q1 2017. 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 Q1, unchanged from 10.0% in Q4, and up from 9.9% in Q1 2017. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis:

Despite continued announcements of store closures, the Neighborhood and Community Shopping Center vacancy rate remained at 10% for the fourth consecutive quarter, up from 9.9% in the first quarter of 2017. The vacancy rate has increased 20 basis points from a low of 9.8% in Q2 2016.

On the national level, both asking and effective rents increased 0.4% in the first quarter. At $20.96 and $18.34 per square foot, the average market and effective rents have increase 1.9% and 2.1% year-over-year, respectively.

Net absorption was 453,000 square feet, the lowest quarterly total in more than five years. Construction was also much lower than average: 712,000 square feet, well below the 3.1 million square feet quarterly average in 2017. The first quarter tends to see the lowest activity; however, this was an unusually slow quarter for retail leasing and construction.

The mall vacancy rate increased to 8.4% in the quarter, up 50 basis points from 7.9% in the first quarter of 2017. The quarterly rent increase of 0.5% shrouds the gap between the higher-end malls, which are thriving, and the increasingly vacant lower-end malls.
...
Although the retail real estate market survived the tsunami of closures in 2017, the closures expected in the second quarter from Toys “R” Us, BI-LO and others will be a true test of the retail sector’s ability to weather the ongoing storm.
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.

Recently both the strip mall and regional mall vacancy rates have increased from an already elevated level.

Mall vacancy data courtesy of Reis