As Retailers Go Dark, Mall Vacancies Reach Highest Level In 7 Years

In previous real estate cycles, all of the ingredients would have been in place to foster healthy retail absorption and lower vacancies. Not this time around.

Despite the nation's strong economy, low unemployment levels and high consumer spending and confidence, U.S. retail vacancies have reached a seven-year high.

Nationwide, mall vacancy rates rose to 9.1% in the third quarter, their highest level in seven years, according to Reis data, up from 8.6% in Q2 2018 and 8.3% in Q2 2017. Rents are down as well by 0.3% during the third quarter to $43.25/SF. 

Reis defines malls as larger retail properties, not community or strip centers. Vacancies are up for those kinds of properties. Much of the upward pressure on mall vacancies has come recently from the shuttering of large department stores and anchors like Sears and Bon-Ton.

Increasing vacancies are also a function of the bifurcation of retail into winners and losers, with malls in some parts of the country on the short end of the stick when it comes to attracting customers.

Many lower-end malls aren't benefiting from the economic revival, especially in economically depressed areas, such as parts of Pennsylvania, Ohio or Michigan. Those areas have too many shopping centers but not enough consumers, the Wall Street Journal reports.

Lost anchors in lower-end malls are more of a symptom of a problem than a problem itself for many properties.

“Any mall that is worried about a Sears or Macy’s closing has bigger issues,” Sandler O’Neill + Partners Senior Analyst Alexander Goldfarb tells the WSJ.

Malls might be swimming against the tide, but some are doing well, especially in more affluent markets. As a strategy to bring in more shoppers, malls are adding experiential offerings, including restaurants and other entertainment.