Q3 2015 Retail Trends
National Retail Market
On a quarterly basis, retail fundamentals have been improving only slightly. The third quarter was no different – the national vacancy rate for neighborhood and community shopping centers was once again unchanged at 10.1 percent. This marked the second consecutive quarter that vacancy was stagnant. Over the last 12 months, the national vacancy rate declined by just 20 basis points, a rather modest change for that duration of time.
Asking and effective rents both grew by 0.5 percent this quarter. This is just about on par with rent growth over the last couple of quarters. This rate of rent growth is understandable, given the relative lack of demand for these centers.
What about regional malls, the larger property type? During the third quarter, the regional mall vacancy rate was unchanged at 7.9 percent. The vacancy rate has remained essentially the same between the fourth quarter of 2013 and the third quarter of 2015. Asking rents did grow by 0.5 percent during the third quarter – year-over-year rent growth remains at its strongest since before the recession in 2007. However, this continues to be largely driven by the performance of higher end malls. Malls further down the quality spectrum are often burdened with high vacancy rates, often from unfilled anchor tenant space, preventing them from exercising pricing power over current and potential tenants.
Supply and Demand Trends
The outlook should be relatively bright for retail sales, with consumer spending still relatively healthy and benefiting from cheaper oil. However, any benefit of said brighter outlook for retail properties is likely to remain muted, given how eCommerce appears to be acting as a constraint on demand for brick and mortar space.
Source: REIS Victor Calanog on Dec 8, 2015