Vacancies at US strip malls hit an 18-year high in the fourth quarter and the vacancy rate for large regional malls reached the highest in at least 10 years, according to real estate research firm Reis Inc.
Strip malls – neighbourhood and community shopping centres typically anchored by grocery or drug stores – had a vacancy rate of 10.6 per cent in the fourth quarter, surpassing the high set in 1991, Reis economist Ryan Severino said in a report released yesterday. The early 1990s is a period often referred to as the commercial real estate depression.
‘Our outlook for retail properties as a whole is bleak,’ Mr Severino said in a statement. ‘Until we see stabilisation and recovery take root in both consumer spending and business spending and employment, we do not foresee a recovery in the retail sector until late 2012 at the earliest.’
Reis said that continuing high unemployment and inconsistent consumer spending will weigh heavily on retail properties for at least another 18 to 24 months.
It expected the vacancy rate at neighbourhood and community centres to keep rising, and rents to continue falling till 2011.
The deteriorating fundamentals could inflict strong headwinds for real estate companies such as Pennsylvania Real Estate Investment Trust, Macerich Co, Kite Realty Group Trust, Glimcher Realty Trust General Growth Properties Inc and Equity One Inc.
At the same time, it also could provide buying opportunities for cash-rich companies, such as Simon Property Group Inc and Kimco Realty Corp.
Asking rent at US strip malls fell 0.5 per cent from the third quarter to US$19.12 per square foot (psf) in the fourth quarter, or down 2.05 per cent for the year. Factoring in months of free rent and the landlord’s portion of the cost for interiors, effective rent fell 0.8 per cent to US$16.75 psf, wiping out rent gains over the past nearly four years.
For the first time in Reis’ 29 years of tracking the fundamentals of strip malls, effective rent in all of the 77 markets it covers declined.
‘It is daunting to observe this acceleration in decline in what has traditionally been regarded as a stable property type,’ Mr Severino said.
The vacancy rate at large regional malls rose to 8.8 per cent from 8.6 per cent the third quarter. It was the highest vacancy rate for US malls since Reis began tracking mall performance. Asking rent fell 0.4 per cent to US$39.03 psf, the lowest since the second quarter of 2006.
‘This is the first time in almost 10 years of quarterly history that Reis has observed rent declines for five straight quarters, and the year-over-year decline of negative 3.6 per cent is the largest magnitude of deterioration over a 12-month period on record as well,’ Mr Severino said.
Source: Business Times, 7 Jan 2010
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