Thursday, October 03, 2019

Reis: Mall Vacancy Rate Mixed in Q3 2019

by Calculated Risk on 10/03/2019 01:19:00 PM

Reis reported that the vacancy rate for regional malls was 9.4% in Q3 2019, up from 9.3% in Q2 2019, and up from 9.1% in Q3 2018. This is at the 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 10.1% in Q3, down from 10.2% in Q2, and down from 10.2% in Q3 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 Retail vacancy rate declined in the quarter to 10.1% from 10.2% in the second quarter. In the third quarter of 2018 it was also 10.2%. Overall vacancy has declined only 0.3% in last five years.

Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.3% in the third quarter. At $21.45 per square foot (asking) and $18.79 per square foot (effective), the average rents have increased 1.5% and 1.6%, respectively, from the third quarter of 2018.

The Mall vacancy rate increased to 9.4%, from 9.3% last quarter and a low of 7.8% in 2016. Rent growth was positive at 0.2% for the quarter and 0.6% for the year. Although retail store closures and bankruptcies still dominate the news, the overall retail property statistics have held steady as new users fill vacated space of large department stores.
...
Similar to its sibling property types, the retail sector continued to shrug off bad news in the broader sector. Just this week, the news media seemed to yawn when retailing power house Forever 21 declared bankruptcy. Reports said they would close 178 of their 600 stores. The retail sector has withstood numerous store closings, this latest one should not deliver a big blow. Retail spending remains healthy as consumer spending keeps climbing in step with job growth. In short, the retail sector is poised to continue to grow at the current slow but steady rate.
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