Source: online.wsj.com ~ Author: Robbie Whelan
Rental rates at malls and strip shopping centers ticked up slightly in the third quarter, but vacancy rates remained flat as the slow recovery in retail real estate continued to plod along.
Asking rents at regional malls rose 0.5% in the quarter to $40.51 a square foot, up 1.8% from a year earlier, according to data released Thursday by real-estate research company Reis Inc. Mall vacancies remained at 7.9% for the fourth quarter in a row.
Strip centers saw rents rise 0.4% in the quarter to $17.06 a square foot, up 1.8% from a year earlier. Third-quarter vacancy remained unchanged from the previous quarter at 10.3%, slightly lower than the average vacancy rate of 10.74% over the past five years.
The numbers are a sign of continued pain in the retail real estate market. Prices have risen quickly for the highest-quality assets, including the largest, most productive malls and boutique spaces on main thoroughfares in big cities, but they remain sluggish for more run-of-the-mill properties in less attractive locations.
“The last few years have been a tough slog for retail. There’s still a hangover from the recession for consumers,” says Ryan Severino, an economist with Reis.
“It’s left a lot of consumers with a limited ability to spend in a discretionary sense, and that’s reflected in both the slow rent growth and vacancy not really going down,” he adds.
Shopping-center vacancies rose fastest in Chicago (1.4%), Wichita (1.2%) and Tacoma, Wash. (1.2%). They fell fastest in Palm Beach, Fla. (-1.7%), San Jose (-1.2%) and Sacramento (-1.1%).
The pace of construction of new shopping centers is also close to a record low, Reis said. Retail landlords have added 3.99 million square feet of new shopping centers so far this year, including 1.3 million in the third quarter.
The previous low was set in 2010, when builders added 4.5 million square feet over the whole year.
“We used to build about 2,000 shopping centers a year in this country. Now it’s just a few hundred,” said David Henry, the chief executive of Kimco Realty Corp., a shopping-center owner based in New Hyde Park, N.Y.
“Fast casual restaurants like Panera and Chipotle are powering new leases for us,” he added. “We’re smiling again after a couple of tough years since 2009. We’re happy with the fundamentals.”
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