January 7, 2019
Given the many store closures across the U.S., minimal changes in vacancy rates show how the retail sector has withstood the structural changes in the industry. Both the mall sector and the neighborhood and community shopping center sectors have experienced significant volatility over the last year, but the statistics were little changed in the fourth quarter, according to the latest research by Reis.
Reis’ Barbara Byrne Denham wrote, “Many may recall that the store closure announcements for Sear’s, Kmart, JC Penney et al dominated the news at the end of 2017. Many feared that vacancy rates would soar and rents would plummet. This did not occur as the doomsday prognostications proved to be overblown. 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 online shopping.”
The retail vacancy rate was unchanged at 10.2% in the fourth quarter. Asking and effective rent growth was 0.4% in the quarter, in line with previous quarter’s growth. Net absorption were positive but weak.
The mall vacancy rate fell to 9.0% in the fourth quarter from 9.1% in the third quarter. At the end of 2017, vacancy was 8.3%. The average mall rent increased 0.2% after dropping 0.3% in the third quarter.
Net absorption was low in the fourth quarter: 1.4 million square feet, down from 2.6 million in the third quarter. Likewise, construction was also low at 1.9 million square feet, but in line with the average of the previous quarters: 2.0 million square feet. In 2017, construction averaged 3.6 million square feet per quarter.
Vacancy increased in 32 of 77 metros in the quarter, reports Reis. Effective rents declined in 15 metros. For the year, 51 metros have higher vacancy and three show a rent decline. For most metros, the vacancy increase was due to negative net absorption: 33 metros saw negative net absorption in the quarter, up from 25 in the fourth quarter of 2017. Metros with the highest vacancy rate increase in the quarter include Syracuse, New Haven, St. Louis, Rochester and Fairfield County. Metros that saw the largest drop in vacancy include Omaha, Wichita, Dayton, Orlando and Charleston.
You can hear more about the trends shaping the retail industry at Connect Retail West coming up on Jan. 22nd at The Resort at Pelican Hill. Here’s where to get more information and register to join us.
For comments, questions or concerns, please contact Dennis Kaiser