Thursday, July 8, 2010

US shopping centre vacancy rate reaches 10-year high in Q2

(NEW YORK) Retailers shuttered more stores in US shopping centres during the second quarter, further delaying a rebound in the struggling retail real estate market, according to research firm Reis Inc.

Shopping centres and strip malls have been pounded harder than other types of real estate, hurt by weak consumer spending, anaemic job growth and an oversupply built to serve new housing that never materialised.

'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,' said Victor Calanog, Reis director of research.

For US strip centres, the vacancy rate in Q2 rose 0.1 percentage point from Q1 to 10.9 per cent, slightly below the 11 per cent in 1991 during the prior real estate bust, according to the Reis quarterly report, released yesterday.

Retailers gave up 1.85 million square feet of occupied space in Q2 at neighbourhood shopping centres, while developers opened less than 400,000 square feet of new strip mall space.

That compares with an average of about seven million to eight million square feet of shopping centres built each year from about 2001, according to Reis.

Unlike the office or apartment real estate sectors, a meaningful recovery in retail real estate is expected to be very sluggish, Mr Calanog said.

Rents are not expected to return to 2008 levels before 2016, he said.

'It's really the one sector where because of persistent overbuilding across time, things will really get way down and even a recovery defined by a bottoming out will be pretty tepid,' he said.

A recovery also will depend on type of real estate, tenants and location, he added.

Asking rents fell 0.3 per cent from Q1 to US$19.07 per square foot, the lowest since the end of 2006, according to the report.

Factoring in months of free rent and other perks landlords offered to attract and retain tenants, effective rent fell 0.5 per cent to US$16.58 per square foot, the lowest in nearly five years.

Reis said that roughly half of its clients plan to take advantage of the cheap rents in their expansion plans.

'Only about 20 per cent expressed such sentiments in the first quarter, and none were in a position to plan for expansion in 2009 for obvious reasons,' Mr Calanog said.

'If rents are so cheap now and they can lock it in, maybe it is time to expand,' he said. 'Some people will benefit from this. But it's not going to be the retail landlord.'

At large US malls, the vacancy rate rose 0.1 percentage point from Q1 to 9 per cent, the highest since Q1 2000, when Reis began tracking regional malls.

Asking rent fell 0.2 per cent to US$38.72 per square foot, marking the seventh straight quarter of decline. Asking rent was the lowest in more than four years. Reis does not track effective rent at regional malls.

Some publicly traded retail real estate landlords are expected to fare better than the overall market.

Many of them, including Simon Property Group, Kimco Realty Corp, Developers Diversified Realty Corp and Equity One Inc, are scheduled to issue Q2 reports starting the end of July. -- Reuters

Source: Business Times, 8 Jul 2010

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