by Doug Desjardins
Following a better-than-expected holiday shopping season, shopping mall and strip mall owners were hoping to see retailers return to long-vacant storefronts. But so far, that hasn’t been the case.
According to research firm REIS Inc., the average retail vacancy rate for strip malls inched up slightly for the second quarter ending June 30 to 10.9 percent, a slight bump from 10.8 percent in the first quarter and the highest level since rates hit 11% in 1991 during the last recession. 
Shopping malls reported fewer empty shops than their colleagues but a similar increase in vacancies in the second quarter, with rates jumping 0.1 percent to 9 percent.
In early 2007, before the start of the recession, vacancy rates in strip malls were around 7 percent and shopping-mall vacancies were under 5 percent, showing that rates have nearly doubled during the past three years.
Though rates are still rising, they’re not climbing as fast as last year and offering some hope for property owners. “Overall, the news is still bad but not as bad as 2009,” said Victor Calanog, director of research for REIS. “We’re seeing little glimmers of recovery.”
With thousands of empty storefronts available, retailers looking to expand find themselves in a buyer’s market. Lease rates at shopping malls declined for the seventh consecutive time in the second quarter, dropping 0.2% to $38.72 per square foot. Lease rates at strip malls dropped 0.5% during the same period to $16.58 per square foot, though REIS said the decline was the smallest since rates began their free fall in 2008.
But the news isn’t all bad. Vacancy rates in 31 major U.S. markets actually declined during the second quarter and the declines came in bellwether markets including Las Vegas and Orange County in Southern California. And average lease rates for malls and strip centers increased in 11 markets during the quarter, primarily in smaller markets such as Pittsburgh and Cincinnati.
REIS reported that 50 percent of retailers surveyed said they may start expanding this year to take advantage of the low lease rates.
“Only 20 percent expressed such sentiments in the first quarter and none were in a position for expansion in 2009, for obvious reasons,” said Calanog. “If rents are so cheap now and they can lock it (the lease rate) in, maybe it’s time to expand. Many people will benefit from this, but it’s not going to be the retail landlord.”
Even with retail vacancy declines slowing and retailers getting ready to expand, it will be many years before things return to pre-recessions levels. REIS said vacancy rates should remain steady for another year and start to decline in 2012. But the recovery will be slow and vacancy rates aren’t expected to return to pre-recession levels until 2016.
Resources
Mall and Shopping Center Vacancies Continue Upward Swing
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