* First drop in US strip mall vacancies in nearly 7 yrs
* US strip mall rent inches up, big-mall rent rises
* US mall vacancy continues to decline
By Ilaina Jonas
NEW YORK, April 5 The average vacancy rate at
U.S. strip malls fell for the first time in nearly seven years
in the first quarter and rents inched up, but it is too early to
call a rebound for a sector battered by the housing bust and
recession, a report by Reis Inc showed.
The real estate research firm said vacancies at large U.S.
regional malls continued to decline in the near-absence of new
supply, but consumer spending is not strong enough to lift
retail real estate out of its slump.
"The tide of the economy is not rising quickly enough to
raise all the ships in the ocean of retail," according to the
report released Friday.
The retail real estate sector, which includes big regional
malls, open-air lifestyle centers, strip malls and power centers
that are home to big-box stores, have been among the hardest hit
of all types of commercial real estate. At the mercy of consumer
spending, these types of real estate have reflected the diverse
pressures and changes in consumer spending.
Big-box stores, which sell mass-market items like
electronics and household goods, have been hit not only by the
economic downturn but also by online retailers which compete on
price. Recently Best Buy Co Inc said it would close 100
big-box stores and open 50 smaller ones focused on mobile
"They're going to be smaller and crop up in malls and
neighborhood community stores," Reis senior economist Ryan
During the first quarter, the national vacancy rate for
strip malls fell to 10.9 percent from 11 percent the prior
quarter, according to preliminary figures from Reis. Strip
malls, also known as neighborhood shopping centers, are usually
anchored by grocery or drug stores.
"This is really only the first quarter where the vacancy
rate declined. We need to see something a little bit more
sustained than just a quarter or two before it really signals
the beginning of a trend," Severino said.
The housing bust killed many of these centers, which
remained vacant when new neighborhoods failed to grow around
them. Vacancies have been rising since bottoming at 6.7 percent
in the second quarter of 2005. The first-quarter decline broke
through the 11 percent cyclical high the national vacancy rate
had been stuck at since the second quarter of 2011.
The average asking rental rate in the first quarter rose 0.1
percent, the same increase as in the fourth quarter, to $19.05
per square foot. Effective rent, which strips out months of free
rent and other perks landlords offer to lure or retain tenants,
also rose 0.1 percent to $16.57 per square foot.
"Although we have not seen consistent enough improvement to
declare a turnaround in the sector, the decline in the vacancy
rate, coupled with the increases in asking and effective rents,
is the strongest evidence to date that the sector is beginning
to stabilize and recover," the report said.
In fact, with supply of new strip malls at near-historic
lows, a true resurgence of healthy demand would have created a
bigger decline in vacancy, Reis said.
Reis expects the vacancy rate to continue to slowly decline
throughout the year, but until the U.S. economy and labor market
are stronger, Reis said the outlook remains unclear for these
At regional malls, the first-quarter vacancy rate fell to 9
percent from 9.2 percent the prior quarter. It was the second
consecutive quarterly decline for the big malls. The average
asking rent rose 0.2 percent to $39.00 per square foot. Reis
does not track effective rent for regional malls.
The trend has benefited real estate investment trusts, which
include Simon Property Group Inc, General Growth
Properties, Macerich Co and Taubman Centers Inc
, which collectively own more than 70 percent of the
nation's so-called class A malls, which generate the highest
sales per square foot.