The regional mall vacancy rate in the U.S. edged up 0.2% to 8.1% in the second quarter, up from 7.9% in Q1 and 7.9% from a year ago, largely due to the planned closures of Macy’s stores nationwide, according to data from real estate research firm Reis, cited by Calculated Risk.
The regional mall rate is down from a cycle peak rate of 9.4% in Q3 2011. The vacancy rate for neighborhood and community malls, also known as strip malls, was 10.0% in the quarter, up from 9.9% last quarter, and up from 9.8% in the year-ago period. That measure is down from the peak rate of 11.1% in Q3 2011, according to the report.
The retail vacancy rate rose 0.1% in the quarter to 10%, but asking rents rose 0.4% in that time as new stores balanced out closures, according to the report.
Major shifts in retail and a series of high-profile retail bankruptcies are contributing to a generally downbeat buzz about shopping malls, but that belies the reality that many shopping centers are thriving.
Simon Property Group last month said occupancy in its U.S. malls and premium outlet properties was 95.6% at the end of its first quarter, unchanged from the same point last year, according to the company's first quarter earnings press release. Simon CEO David Simon has said that e-commerce is not going to smash brick-and-mortar retail, and that, with some thought, effort and diversification, retail properties can prosper.
The effect of Macy’s closures on vacancies, though, hints at the troubles in store, as closures of anchor tenants, including not just Macy’s but also Sears and Kmart stores, leave landlords scratching their heads on how to fill the space.
Many landlords aren’t addressing the obsolescence of the full-line department store model, according to retail analyst Nick Egelanian, president of retail development consultants SiteWorks International.
Sales in U.S. department stores, estimated to have once peaked at over $400 billion annually, today total less than $70 billion annually, he told Retail Dive in an email. "While we expect higher end 'specialty apparel' stores like Nordstrom and Nieman Marcus to remain relevant, sales at Sears, J.C. Penny, Macy’s and the few remaining regional department store operators are in a death spiral."
Those stores once housed 50 or more merchandise departments, but today they rely almost entirely on apparel, cosmetic and housewares sales. "Each of these remaining categories is under under outright assault as a variety of discounters, including T.J. Maxx, Ross, Marshalls, Home Goods, H&M, Zara and Ulta Beauty collectively open well over 500 stores annually," Egelanian said last month. "This represents a massive long-term and continuing market share shift that is not a short-term trend but rather a 30-year trend in its final act."
Like Simon, Egelanian doesn't believe that e-commerce is the force underpinning that shift, and he said new strategies will lift the sector.
"Contrary to popular belief, internet sales are contributing little to department store declines, and internet sales strategies will do little to end the bleeding or stop the closure of thousands of additional department stores and hundreds of B and C malls, which are being rendered functionally obsolete," he said. "In a strange twist, however, the smaller number of malls that remain operating when the dust settles will become virtually indestructible by offering only best-in-class higher end merchandise in exclusive collections. We already know who the winners will be, and the vast majority are owned and operated by four REITs: Simon, Westfield, Macerich and GGP."