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Research - NOVEMBER 6, 2018

U.S. mall vacancy rate jumps to 9.1% in Q3

by Jody Barhanovich

The U.S. mall vacancy rate jumped to 9.1 percent in the third quarter, up from 8.6 percent in the second quarter 2018, according to Reis. One year ago it was 8.3 percent. The increase was due to a number of Sears stores that finally closed their doors in early August. Sears has also prepared itself for potential bankruptcy. Of the closed Sears stores, many were owner occupied and thus not included in the Reis statistics. Therefore, vacancy would have been somewhat higher if they had been included.

Along with the jump in vacancy, the average mall asking rent declined 0.3 percent in the third quarter — this was the first quarter to see a rent decline since 2011. The mall rent had increased 0.4 percent per quarter, on average, for the last eight quarters.

For some good news, the neighborhood and community-shopping sector saw no change in vacancy in the third quarter following the steep negative net absorption in the second quarter, according to Reis. The third quarter’s absorption was low but positive. The vacancy rate was unchanged at 10.2 percent. Only 26 metros saw negative net absorption in the third quarter, down from 57 metros in the second quarter.

In addition, construction in the neighborhood and community shopping center space was 2.3 million square feet, well above the very low levels of completions in the first two quarters of the year of 1.5 million square feet and 1.4 million square feet, respectively. One year ago, construction was 3.1 million square feet. Developers have been very hesitant to build new space given the ongoing structural changes in the retail sector. The pipeline of retail construction is also lower than in previous quarters this cycle.

Looking forward, with the closing of large stores such as Sears, Reis believes many retail shopping centers have prepared for the inevitable closings and landlords have lined up redevelopment plans or new leases. The positive net absorption and flat vacancy rate for neighborhood and community shopping centers suggest that owners can fill empty space more readily than many would believe.

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