* U.S. regional mall vacancies jump to 9.3 pct, rent flat
* Strip mall vacancies climb to 11 pct, rent flat
* Reis economist not optimistic picture will change soon
By Ilaina Jonas
NEW YORK, July 8 The average vacancy rate for
large U.S. shopping malls reached its highest level in 11 years
in the second quarter, as department store closings took effect
and retailers scaled back their floor space due to cautious
shoppers, according to a report issued on Friday.
Preliminary figures by real estate research firm Reis show
the vacancy rate at these regional malls rose to 9.3 percent,
the highest level since 1990 and up from 9.1 percent in the
The picture was even bleaker for U.S. strip malls where
retailers gave up over half million more square feet than they
rented. The vacancy rate at these local retail strips was 11
percent versus 10.9 percent in the first quarter, almost
matching the 11.1 percent record set 20 years ago, Reis said.
Rents at both types of retail locations were flat.
"Even though we've been out of a recession for two years,
there aren't a lot of jobs out there, and people are still risk
adverse," said Ryan Severino, Reis senior economist. "That's
depressing demand for both retail goods and retail space."
In addition to weak demand from consumers, landlords are
grappling with competition from online sales, which reduces
demand for physical stores.
"Halfway through 2011, it is difficult to feel optimistic
about retail properties. Expect continued difficulties for the
retail sector in the latter half of 2011," Severino said.
At regional malls, anchor stores that closed prompted some
specialty tenants to leave when their leases were up. In other
cases, closed anchor stores allowed specialty store tenants to
break their leases.
That put pressure on rents. The average U.S. regional mall
asking rent in the second quarter was essentially flat compared
with the first quarter, at $38.77 per square foot, and about
the same as in 2006.
Asking rent at strip malls during the second quarter was
also about flat at $19.03 per square foot.
Strip malls are quicker and cheaper to build but have left
the strip mall sector struggling with too much inventory.
Factoring in months of free rent and other incentives
landlords use to lure tenants, effective rent was $16.54 per
square foot at strip malls, the lowest level since the third
quarter of 2005.
(For graphics of retail mall vacancies and rent, click:
r.reuters.com/nar52s and r.reuters.com/war52s )
U.S. retailers reported better-than-expected June sales on
Thursday. The 25 chains tracked in the Thomson Reuters sales
tally reported a 6.5 percent gain in sales at stores open at
least a year. [ID:nN1E76602K]
"On a relative basis, retail sales have done OK," Severino
said. "But there was a pretty big pullback in the wake of the
recession, and we haven't really gotten back to the spending
levels that we once saw."
Even if demand from retailers begins to rise, it will take
a while before space is leased and vacancies tighten enough for
landlords to raise rents and reduce incentives.
Big mall owners such as Simon Property Group Inc (SPG.N),
General Growth Properties Inc (GGP.N) and Taubman Centers Inc
(TCO.N), as well as strip mall owners Kimco Realty Corp (KIM.N)
and Equity One Inc (EQY.N) are scheduled to report
second-quarter results in the next few weeks.
(Reporting by Ilaina Jonas; Editing by Tim Dobbyn)