Shopping center vacancy rate hits 17-year high: report

NEW YORK Thu Oct 8, 2009 12:33am EDT

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NEW YORK (Reuters) - The vacancy rate at U.S. strip malls reached a 17-year high in the third quarter and mall vacancy was the highest in at least 10 years, reflecting the protracted pull-back by consumers, real estate research firm Reis Inc said.

The downturn in the U.S. economy, anemic consumer spending and the U.S. housing bust severely hurt new retail properties, 30 percent of which were completed with less than 50 percent occupied, Reis said in a report released on Thursday.

"Our outlook for retail properties as a whole is bleak," Victor Calanog, Reis director of research, said. "Until we see stabilization and recovery take root in both consumer spending and business spending and hiring, we do not foresee a recovery in the retail sector until late 2012 at the earliest."

The prognosis does not bode well for mall and shopping center owners including Developers Diversified Realty Corp (DDR.N), Macerich Co (MAC.N), General Growth Properties Inc GGWPQ.PK, Simon Property Group (SPG.N), Equity One Inc (EQY.N), Kimco Realty Corp (KIM.N), Pennsylvania Real Estate Investment Trust (PEI.N), Realty Income Corp (O.N) and Kite Realty Group (KRG.N).

The third-quarter vacancy rate at U.S. strip malls, which include local shopping and big-box centers, rose 0.3 percentage points from the second quarter to 10.3 percent, the highest since 1992, Reis said.

Asking rent at strip malls slid 0.3 percent from the second quarter to $19.22 per square foot and were down 1.9 percent from the prior year. Asking rents were the lowest since mid 2007.

Factoring in months of free rent and other perks, effective rent fell 0.8 percent from the second quarter to $16.89 per square foot or down 3.8 percent from the third quarter 2008. Rents were the lowest since mid-2007

Rents continued to decline as retail property landlords faced ongoing pressure from tenants who reduced their space requirements, negotiated more favorable lease terms, or went out of business altogether.

"Since asking and effective rent growth only turned negative about one year ago, it is daunting to observe this acceleration in decline in what has traditionally been regarded as a stable property type," Calanog said.

Reis expects rising vacancy levels and declining asking and effective rents for neighborhood and community centers through 2011.

"We have yet to observe any unexpected systematic resumption in hiring and strength in consumer spending that may lead us to revise our projections with a more optimistic bent," Calanog said.

U.S. mall vacancy rate rose 0.2 percentage points to 8.6 percent in the third quarter, the highest vacancy level since Reis began tracking regional malls in the first quarter 2000.

Asking rent at big U.S. malls fell 0.6 percent from the prior quarter to $39.18 per square foot and was down 3.5 percent from a year earlier. It was the fourth straight decline in rents and the largest one-year decline Reis has seen.

Reis does not generate forecasts for regional malls.

(Reporting by Ilaina Jonas; Editing Bernard Orr)

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