Dive Brief:
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U.S. retail mall vacancies increased 7.9% from 7.8%, the first quarterly increase since Q4 2014, according to real estate research firm Reis Inc., Reuters reports. While rent continues to stay very high and vacancies very low at high-end malls, traditional malls are seeing low rent and high vacancies, according to the report.
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Growth in asking rents and effective rents both also decreased in the second quarter from the first: 0.4%, compared to a 0.5% growth in Q1, and Q2 effective rents rose 0.5%, compared to the Q1 0.6% rise.
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According to the report, there aren’t many new centers being built: just 1,403,000 square feet of new shopping center space was completed during the second quarter, the lowest level of quarterly completions in three years.
Dive Insight:
This report from Reis jibes with previous trends that see high-end malls thriving while more traditional malls struggle to attract tenants, fetch good rents, and, in many cases, stay open.
Although the retail market could generally strengthen, any recovery will not be felt much by neighborhood malls, Reis senior economist Ryan Severino told Reuters. And the retail mix has decidedly changed, he said.
"The heyday of department stores is clearly in the past while apparel retailers (for example) compete fiercely with e-commerce," Severino told Reuters.
The fault lines are increasingly clear, and retail analyst Jan Kniffen in May told CNBC’s “Squawk Box” that, with his estimation of e-commerce sales reaching half of all apparel sales in a dozen years or so, brick-and-mortar retail will simply have to adjust by closing stores. He called Amazon the “biggest gainer in apparel.”
That will hit many malls hard, according to his numbers. While America currently has about 1,100 enclosed malls, Kniffen, CEO of J. Rogers Kniffen Worldwide Enterprises, said that number should be around 700. “The top 250’ll do fine, and the rest of them are going to struggle,” he noted.
But the level of scale-down described by Kniffen will impact the emerging omnichannel approach favored by many shoppers. Driving down that number of stores would no doubt impact retailers' ability to provide different kinds of fulfillment, like in-store pickup, returns, or same-day delivery. And fulfillment for online orders, which, since it takes packaging and shipping, will continue to be expensive and hit retailers’ bottom lines.
One way to connect more with consumers is to present a mall as a community resource, not just a place to shop. While traditionally it’s been anchor tenants like department stores that were seen as bringing in shoppers, who would also float by smaller specialty retailers as they walked through, in recent years malls have added amenities like gyms and even medical and dental offices.
“Those are the new anchors. No longer should you have five department stores,” Green Street senior analyst Daniel Busch told the Wall Street Journal in Feburary. Mall owners these days “have to be creative.”