NEW! CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, January 08, 2014

Reis: Mall Vacancy Rates decline in Q4

by Calculated Risk on 1/08/2014 09:42:00 AM

Reis reported that the vacancy rate for regional malls declined to 7.9% in Q4, down from 8.2% in Q3. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was declined to 10.4%, down from 10.5% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip Malls] The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points during the fourth quarter. This was a slight improvement versus last quarter when vacancy was unchanged, but more or less in line with the pace of improvement since the market began to recover two years ago. ... Vacancies for neighborhood and community centers now stand at 10.4%, down 30 basis points during 2013, and down 70 basis points from the historical peak vacancy rate of 11.1% which was recorded over two years ago, during the third quarter of 2011. Yet there are some modestly hopeful signs.

Construction during the fourth quarter was the highest since the fourth quarter of 2011 while net absorption was the highest since the fourth quarter of 2007. The fact that net absorption exceeded construction by roughly 2.5 million SF during the quarter is certainly a heartening sign. This indicates that there is some semblance of demand for existing inventory and not simply the addition of pre‐leased space in the market.
[Regional] Malls continue to be the outperformers during the retail market recovery. As of the fourth quarter mall vacancies stand at 7.9%, down 30 basis points from the third quarter, down 70 basis points during 2013, and down 150 basis points from the historical high level reached during the third quarter of 2011.
Apartment 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.

For strip malls, absorption has increased (highest since 2007), but new construction has increased too keeping the overall vacancy rate high.  Some areas of the country are recovering faster than others (malls aren't transportable!), so there are areas with new construction while other areas are still struggling.

Mall vacancy data courtesy of Reis.