Mall vacancies and rents stabilize in Q4
The retail vacancy rate was unchanged in the fourth quarter, at 10.2% as asking and effective rent grew 0.4%, also in line with third quarter growth, according to real estate research firm Reis. Net absorption was "positive but weak," Reis said.
The Mall vacancy rate fell to 9% in the quarter from 9.1% in the third quarter — which had been the largest quarterly increase since 2009 and a seven-year high. At the end of 2017, by contrast, vacancy was 8.3%. The average mall rent rose 0.2% after dropping 0.3% in the third quarter, according to the report, which was emailed to Retail Dive.
The neighborhood and community shopping center vacancy rate was flat in the fourth quarter at 10.2%. At year-end 2017 it was 10%, while at year-end 2016 it was 9.9%. Both national average asking and effective rents at neighborhood and community shopping centers, which net out landlord concessions, rose 0.4% in the fourth quarter, Reis said.
The cataclysmic level of store closures in recent years from those major players and others had analysts and landlords bracing for plunging rents and soaring vacancies, but "the doomsday prognostications proved to be overblown," Reis Senior Economist Barbara Byrne Denham said in her report. "That said, a number of stores are still expected to close in the coming months and the industry continues to face a number of headwinds including gains in on-line shopping."
New development has slowed to a crawl as some shopping centers have been demolished, she noted. Many former big box retail stores at some shopping centers are no longer used for retail, moving to serve as self storage facilities or other uses, including fitness companies, trampoline parks and grocery stores, according to Reis data. Structural changes like that continue, as do improvements to stores that are keeping shoppers going to physical locations. But, while retailers that fail to update their stores and merchandise to meet consumers' elevated expectations are probably doomed, the survivors are more numerous than many expected, according to Denham.
"[I]f the retail sector was able to sustain the store closures over the last year, it can survive anything," she said. "With minimal construction in the pipeline, vacancy rates are expected to hold steady in the coming year while rent growth should continue to stay positive but below the rate of inflation."
Follow Daphne Howland on Twitter