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Monday, October 02, 2017

Reis: Mall Vacancy Rate increased in Q3 2017

by Calculated Risk on 10/02/2017 01:22:00 PM

Reis reported that the vacancy rate for regional malls was 8.3% in Q3 2017, up from 8.1% in Q2, and up from 7.8% in Q3 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 Q3, unhanged from 10.0% in Q2, and up from 9.9% in Q3 2016. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Economist Barbara Byrne Denham:

The increase in the Mall vacancy rate was due to confirmed closings of JC Penney and Sears stores. This only increased vacancy by 0.2% to 8.3%. Since the third quarter of 2016, the mall vacancy rate has increased 50 basis points from 7.8% which was the lowest since 2008. Rents increased only 0.2% as most owners kept rents flat.

The [strip mall] retail statistics continued to defy the otherwise negative reports of store closures, posting positive net absorption (occupancy growth) in the quarter and holding vacancy at 10.0%. Asking rents increased 0.4%, low by any standard but still positive and contrary to the sentiment expressed in the media.

New construction of 1.6 million square feet was the lowest level of completions since 2014. Net absorption was 578,000 square feet, the lowest since 2010 and the second quarter in a row of less than 1.0 million square feet occupancy growth. The underlying data shows that absorption was positive in July and August but negative in September as a number of stores in the Reis survey pool closed in the month.
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.