Reis: A Challenging Retail Recovery

The retail sector continued its slow recovery in the fourth quarter, but several factors still conspire to make the recovery challenging, reported Reis, New York.

Neighborhood and community center vacancy declined 10 basis points to 10 percent while mall vacancy declined by 10 basis points to 7.8 percent, Reis reported.  

“Malls have had a better recovery than neighborhood and community centers up to this juncture, but neither has had a strong recovery on a widespread basis,” said Reis Senior Economist and Director of Research Ryan Severino.  

Severino noted several reasons for the sector’s slow recovery. “The best space was snatched up relatively early in the recovery phase, leaving the more difficult space behind,” he said. “A lot of what remains vacant is in inferior buildings and/or inferior locations.”  

Additionally, e-commerce continues to grow far faster than bricks-and-mortar sales, adding another challenge to the retail sector, Severino said.  

“The proliferation of relatively new retail subtypes such as town centers, lifestyle centers and power centers over the last 20 or so years has provided consumers with shopping options that they previously did not have,” Severino said. “Many of these new subtypes offer experiential shopping that is not found in more dull and drab neighborhood and community centers, where shopping occurs on a more perfunctory basis.”  

The national vacancy rate declined by 20 basis points over the past 12 months, largely because of limited new deliveries, Reis reported. Developers finished just 2.1 million square feet of neighborhood and community center in the fourth quarter. “Relatively few new centers are being developed from the ground up,” Severino said, noting that some of the new space delivered came from existing center expansions.  

Meanwhile, net absorption also remained meager, with just 2.8 million square feet of space absorbed during the quarter. While this represented the highest tally since the first quarter of 2015, it falls well below prior recoveries.