U.S. strip mall first-quarter vacancies unchanged from previous quarter

April 2 Wed Apr 2, 2014 7:30pm EDT

April 2 (Reuters) - U.S. strip mall vacancies were unchanged in the first quarter of 2014 at 10.4 percent from the fourth quarter of 2013, according to real estate research firm Reis Inc.

The national vacancy rate remains 70 basis points lower from the historical peak of 11.1 percent during the third quarter of 2011. Though the economy continues to experience mild improvement, many strip malls still have too many empty spaces.

Construction during the first quarter was the lowest since the first quarter of 2011. Net absorption, the change between space leased and space vacated, was the lowest since the second quarter of 2011. The rough winter undoubtedly had an impact, prolonging projects. Because of that, Reis noted in its report "the data from this quarter is more of an aberration than a reversal of the upward trend of the last couple of years."

Asking and effective rents both grew by 0.4 percent in the first quarter but rent growth remains slightly below what it was in mid-2007, before the onset of the recession. However, year-over-year rent is moving upward with both asking and effective rents growing by 1.5 percent and 1.6 percent, respectively. This is a small improvement over last quarter when asking and effective rents both grew by 1.4 percent on a year-over-year basis, yet more evidence of an overall recovery.

High-income, affluent markets are outperforming lower-income, less affluent ones.

A constant worry for strip mall operators is e-commerce, said Ryan Severino, Reis's senior economist and associate director of research. "There's more competition online than ever," Severino said. What makes it so difficult, he added, is that no one knows how much business online retailers will siphon away.

"It's a Pandora's box."

(Reporting By Michelle Conlin; Editing by Diane Craft)

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