Dive Brief:
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The vacancy rate for U.S. malls declined 10 basis points in the third quarter of 2016 to 7.8%, according to data from real estate research firm Reis cited by Calculated Risk.
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Shrinking vacancy rates at upscale malls offset trouble at smaller strip malls, where vacancies rose to 10% from 9.9% in the previous quarter, remaining unchanged year over year, Reis said.
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Asking and effective rents for U.S. shopping centers increased for a third straight quarter, while rent growth rate remained steady quarter over quarter at 0.4%, Reis added.
Dive Insight:
U.S. shopping malls have struggled in the face of tepid economic recovery. Brick-and-mortar retail also is dealing with the continued rise of e-commerce: Retail analyst Jan Kniffen, CEO of J. Rogers Kniffen Worldwide Enterprises, said in May that e-commerce sales will reach 50% of apparel sales in a dozen years or so, led by Amazon, and that physical retail will have to adjust by closing stores.
While America currently has about 1,100 enclosed malls, Kniffen said that number should be around 700. “The top 250’ll do fine, and the rest of them are going to struggle,” he noted to CNBC.
But things are looking up, especially for enclosed malls, according to Reis’s Q3 report. Simply put, regional malls are doing better because they serve wealthier shoppers, Reis said.
“Neighborhood and community centers have lagged due to the slow growth in median household income that has kept a lid on discretionary spending over the last few years,” writes report author Barbara Denham, senior economist at Reis. “But recent job growth along with the 2015 median income report showing sharp increases across the U.S. suggest that retail fortunes may improve somewhat after trailing the other property classes over the last five years.”
Denham said that signs of employment growth and rising incomes should help a retail recovery that will extend to all malls, including the smaller neighborhood centers that are lagging now. But gaps in rent growth and vacancy rates will continue to widen at the two types of malls, she added.