US Mall Vacancies Rise At Fastest Rate On Record, Hit High: Moody’s

Shoppers walk through a nearly empty Palisades Center Mall in West Nyack, New York, February 3, 2021.

Mike Segar | Reuters

If you’ve recently noticed more darkened windows and empty stores in the mall, you’re not alone.

The availability rate of regional shopping centers in the United States reached a record 11.4% in the first quarter of 2021 from 10.5% in the fourth quarter of 2020, according to the commercial real estate division of Moody’s Analytics.

The 90 basis point increase marked the highest the company has ever seen, surpassing the record high of 80 basis points in the first quarter of 2009, amid the Great Recession.

“Shopping centers are absolutely on the ropes,” said Victor Calanog, director of Moody’s commercial real estate economics division. “They were on the ropes even before Covid … It’s almost old-fashioned to say that we have a record vacancy rate for shopping centers because we’ve been breaking that record all year long.”

The United States has about 1,000 shopping centers, according to commercial real estate services firm Green Street. Moody’s tracks around 700 of them for analysis.

Shopper traffic to many closed malls, often located in the suburbs, has steadily declined over the years, with Americans spending more online. This pattern was only accelerated by the global health crisis. Many of the retailers within shopping malls, including department stores, have found it increasingly difficult to stay relevant with their customers. Last year, several mall companies, including JC Penney, Neiman Marcus, Lord & Taylor, Brooks Brothers, and J.Crew, filed for bankruptcy.

While other commercial real estate sectors, such as multi-family apartment buildings, are showing better progress, retail remains the hardest hit, Moody’s found in its latest quarterly report.

Industrial real estate has been the most resilient type of property, with a growing demand for warehouses that store merchandise and fulfill e-commerce orders. Rents for storage and distribution properties across the country have not turned negative, so far, for the duration of the pandemic, Calanog said.

Office space, like retail, continues to experience rising vacancies and declining rents. Many companies are still grappling with what the future of the workspace will look like. Companies are considering removing footprints from their offices and allowing employees to embrace work from home, at least some of the time.

Forty-eight of the 79 US metropolitan areas that Moody’s tracks saw effective declines in office rentals in the first quarter. Among the most affected areas are Charleston, South Carolina, with a fall of 3.5% quarter-over-quarter; New York, 1.8% less; and San Francisco, 1.6% less.

Within the retail sector, 40 of 77 metropolitan areas saw a decline in effective rent during the first quarter, Moody’s found. Here, retail is only representative of neighborhood and community malls, not indoor malls, the firm noted.

The vacancy rate for these commercial properties (again, not including shopping centers) was 10.6% during the latest period, slightly up from 10.5% during the fourth quarter.

“It’s an ongoing balance between store closings and openings,” Calanog said of the retail industry. “We want to be fair, there are companies that are opening stores … But right now we are losing space, and that is what the data reflects.”

Retail store growth today has been largely concentrated in the discount and discount space, with companies like Dollar General, Lidl, TJ Maxx, Burlington and Five Below charting larger expansions. Beauty companies Ulta and Sephora also continue to open stores, anticipating a strong post-pandemic rebound in visits to physical stores.

But that growth will not always be enough to make up for deterioration elsewhere.

In a separate report released this week, UBS predicted on a baseline scenario that there will be approximately 80,000 retail store closures nationwide in the next five years, affecting approximately 9% of all retail stores. Clothing, sporting goods and office supply stores are expected to account for a large share of the closings, UBS said.

It had 115,000 shopping centers, a number that includes strip centers, malls, outlet and other lifestyle centers, in the US at the end of 2020, compared to 112,000 in 2010 and 90,000 in 2000.

– CNBC Nate rattner contributed to this data visualization.


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