by Calculated Risk on 10/06/2024 08:14:00 AM

Note: I covered apartments and offices in the newsletter: Moody's: Apartment Vacancy Rate Unchanged in Q3; Office Vacancy Rate at Record High

From Moody’s Analytics economists: Multifamily Performance Steadied, Office Stress Continued to Manifest, Retail Vacancy Declined, And Industrial Cooled Down

The Q3 2024 data indicated a slight decrease in the longstanding 10.4% vacancy rate for the retail sector, dropping to 10.3% this quarter. Asking rents saw a marginal increase of 0.3% to $21.85, while effective rents rose by 0.4% to $24.87 per square foot. Consumer spending in the third quarter has thus far exceeded expectations, particularly in July, which experienced a 1.1% increase. Although August saw a modest 0.1% increase, it surpassed the anticipated -0.2% decrease. These results were propelled by robust performance in online purchases and core retail sales, excluding automobiles, gasoline, building materials, and food services, alongside a decline in the unemployment rate following four consecutive monthly increases.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). 

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 vacancy rate has held fairly steady at a high level as online shopping continues to impact brick and mortar stores.