by Calculated Risk on 7/07/2015 02:58:00 PM

Reis reported that the vacancy rate for regional malls was unchanged at 7.9% in Q2 2015. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.1% in Q2. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist and Director of Research Ryan Severino:

[Strip Mall] After three consecutive quarters of slightly declining vacancy, the national vacancy rate for neighborhood and community centers was unchanged this quarter at 10.1%. Although net absorption exceeded new supply growth, it was insufficient to cause a decline in vacancy. Nonetheless, rent growth continued to slightly accelerate this quarter, though it is barely running ahead of core inflation. [Regional] The vacancy rate for malls also was unchanged at 7.9% while asking rents grew by 0.6%, the seventeenth consecutive quarter of growth. Improvement in the two major subsectors continues, and at an accelerating pace, but their recoveries remain far slower than those of past cycles.

So what’s holding the market back? While ecommerce is not helping, it is not the death knell for bricksand‐ mortar retail that some perceive it to be. In reality, a bigger challenge comes from the proliferation of different retail subtypes over the last two decades. For example, power space inventory has more than doubled since 1998 as demand for this space has increased dramatically. Meanwhile, to put that into context, neighborhood and community center and mall inventory has only increased by roughly 15% over the same time period. The rise of power centers, lifestyle centers, town centers, and even outlet centers has siphoned demand away from traditional retail subtypes.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Mall vacancy data courtesy of Reis.