Reis: Stable Retail Sector Camouflages Changes

Retail sector vacancy rates held steady in the fourth quarter–10.0 percent overall and 8.3 percent for malls–reported Reis, New York.

Retail property asking rents increased 1.8 percent over the year, Reis Senior Economist Barbara Byrne Denham said. Mall rents increased 1.5 percent over the year.

“The [stable] statistics camouflage the changes in the retail sector,” Byrne Denham said. “Although the vacancy rate was flat for the quarter and the year, new tenants including grocery stores and gyms are taking space formerly occupied by bankrupt businesses such as Kmart. At the same time, some retail space is shutting down entirely or getting converted to other uses. Rent growth has been low but still positive throughout 2017.”

New construction equaled 1.5 million square feet–the lowest level of completions since 2013, Reis reported. Net absorption increased to 1.9 million square feet during the quarter. Asking rents increased 0.5 percent or $0.10 per square foot to $20.85 per square foot. Asking and effective rents have increased 1.8 percent and 1.9 percent, respectively, since fourth quarter 2016 and less than 4.0 percent since the end of 2015.

The mall vacancy rate was stable mostly because fewer JC Penney and Sears stores closed in the quarter than earlier in the year, Byrne Denham noted. “The quarterly rent increase of 0.4 percent reflects the net of the higher-end malls that continue to thrive and the lower-end malls that may be on their last gasp,” she said.

Byrne Denham called the numbers “consistent with national retail and restaurant employment trends.” The national retail industry saw more than 28,000 jobs created over the last three months.

On a metro level, statistics show fewer metros, just 23 of the 77 Reis examined, saw a retail vacancy rate increase in the quarter. Metros with the sharpest rise in vacancy included New Haven, Conn., St. Louis, Mo., Richmond and Norfolk/Hampton Roads, Va. and Tampa/St. Petersburg, Fla. On an annual basis, 38 metros show a higher vacancy rate than a year ago, but only seven posted a decline in asking or effective rent.

While the churn in retailers is changing the retail landscape, the overall numbers have been “muted,” Byrne Denham said. “This trend will likely continue in some fashion as more stores including Walgreens, Toys R Us, The Gap, Teavana and a few more downsize and/or close stores while other retailers, gyms and service providers expand, offsetting the vacancies in some metros but likely not all as some still struggle from an overhang of retail space.”