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Thursday, January 07, 2016

Reis: Mall Vacancy Rate Declined in Q4

by Calculated Risk on 1/07/2016 04:11:00 PM

Reis reported that the vacancy rate for regional malls declined to 7.8% in Q4 2015, down from 7.9% 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 declined to 10.0% in Q4 2015, down from 10.1% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist and Director of Research Ryan Severino:

The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points during the fourth quarter to 10.0%. Although both net absorption and construction remain at weak levels, net absorption is slowly starting to pull ahead of construction and push the vacancy rate down again. The vacancy rate for malls also declined by 10 basis points to 7.8%, also demonstrating a bit of resurgence. Malls have had a better recovery than neighborhood and community centers up to this juncture, but neither has had a strong recovery on a widespread basis.
Asking and effective rents once again grew by 0.5% during the fourth quarter. There has not been much change in the rental growth rates for neighborhood and community centers over the last five quarters. Given such an elevated vacancy rate these results are in line with expectations. Over the last 12 months asking and effective rents grew by 2.0% and 2.2%, respectively, which is a bit of an improvement from the 1.8% and 2.0% that they respectively increased during 2014. This was the best calendar-year performance for rent growth since 2007, before the recession.
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.

Mall vacancy data courtesy of Reis.