Thursday, April 03, 2014

Reis: Mall Vacancy Rates unchanged in Q1

by Calculated Risk on 4/03/2014 01:05:00 PM

Reis reported that the vacancy rate for regional malls were unchanged at 7.9% in Q1 2014. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was also unchanged at 10.4%. 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 was unchanged during the first quarter. Though this was slightly worse than the 10 basis points decline from last quarter, it is still on par with the pace of improvement since the market began to recover roughly two years ago. The national vacancy rate remains 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. Although we continue to see improvement in both the economy and the labor market, gains are not yet sufficient to translate into more meaningful declines in the national vacancy rate.

Construction during the first quarter was the lowest since the first quarter of 2011 while net absorption was the lowest since the second quarter of 2011. Inclement weather across much of the country undoubtedly had an impact on construction during the first quarter, delaying projects. Because demand remains tied to new construction, net absorption figures were also muted this quarter. Nonetheless, construction activity remains on an upward trend as the economy recovers.
...
[Regional] Malls continue to perform better than neighborhood and community centers, but their recovery also remains challenging. Vacancy as of the first quarter was 7.9%, unchanged from the fourth quarter and down 40 basis points from the first quarter of 2013. Vacancy is also down 150 basis points from the historical high level reached during the third quarter of 2011. Asking rents grew by 0.5% in the first quarter and 1.7% during the last twelve months. This is the twelfth consecutive quarter of rent increases at the national level for regional malls.
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.

Mall vacancy data courtesy of Reis.