by Calculated Risk on 1/07/2020 11:19:00 AM

Reis reported that the vacancy rate for regional malls was 9.7% in Q4 2019, up from 9.4% in Q3 2019, and up from 9.0% in Q4 2018. This is above the peak following the great recession of 9.4% in Q3 2011, and up from the cycle low of 7.8% in Q1 2016.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.2% in Q4, up from 10.1% in Q3, and unchanged from 10.2% in Q4 2018. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011, and the low was 9.8% in Q2 2016.

Comments from Reis:

The Retail Vacancy Rate rose 0.1% in the fourth quarter as overall occupancy declined by 175,000 square feet due to the closure of 16 Kmart stores in 13 metros; Asking and Effective Rent growth was 0.1% in the quarter – the lowest since 2012.

The Mall Vacancy Rate rose 0.3% to 9.7% in the fourth quarter. Asking and Effective Rent growth was flat.
...
The fourth quarter looks like it could be the start of a declining retail market. For more than two years we had remarked how the retail statistics were defying anecdotal reports of a “retail apocalypse.” But this recent data shows that the scales may have tipped as both the retail and the Mall vacancy rate increased in the quarter. The retail rent growth was a scant 0.1% while Mall rents were flat.
...
Thus, our outlook remains cautious: if vacancies continue to rise, they should not do so at a rapid rate given how slowly the numbers have moved over the last two years. Rents should stay flat for the next few quarters. Indeed, consumers continue to buy more clothing and other goods on-line, but they are also spending more on fitness, entertainment and eating out in establishments that lease retail space. We expect these trends to continue in 2020.
emphasis added

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.

Recently the regional mall vacancy rates have increased significantly from an already elevated level.

Mall vacancy data courtesy of Reis