Tuesday, April 02, 2019

Reis: Regional Mall Vacancy Rate increased Sharply in Q1 2019

by Calculated Risk on 4/02/2019 10:30:00 AM

Reis reported that the vacancy rate for regional malls was 9.3% in Q1 2019, up from 9.0% in Q4 2018, and up from 8.4% in Q1 2018. This is down slightly from a cycle peak of 9.4% in Q3 2011, and up from the cycle low of 7.8% in Q1 2016.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.2% in Q1, unchanged from 10.2% in Q4, and up from 10.0% in Q1 2018. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011, and the low was 9.8% in Q2 2016.

Comments from Reis:

The neighborhood and community shopping center retail vacancy rate was unchanged at 10.2% in the first quarter. It was 10.0% a year ago.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.4% in the quarter. At $21.30 per square foot (asking) and $18.65 per square foot (effective), the average rents have both increased 1.6% from the first quarter of 2018.

With the closing of more than two dozen Sears stores, the Regional Mall vacancy rate increased 0.3% to 9.3%. The average rent, however, was flat in the quarter. A number of other Sears stores closed in the quarter, but they were not included in the regional mall trends, either because they are owner occupied or they are outside of our geographic coverage. The mall vacancy rate had jumped 0.5% in the third quarter of 2018 due to earlier Sears store closings. Many Sears stores remain in operation.

As the retail sector continues to undergo restructuring, a number of retail real estate markets face more vacancies and falling rents. This pattern is expected to continue as more stores will close this year. At the same time, we continue to see stores opening in every metro. A number of other big box vacancies have been converted to self storage and/or sold to developers for redevelopment.
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