Monday 19 March 2018

Lingering joblessness leads to rise in vacancy rates at US malls

Hui-yong Yu

IN THE powerhouse of consumerism, a lingering 10pc unemployment rate has prompted a rise in vacancy rates at smaller, so-called neighbourhood and community shopping centres in the US, according to property research firm Reis.

The vacancy rate at shopping centres rose to 10.9pc during the fourth quarter of 2010, from 10.6pc a year earlier, said a report from Reis.

The rate was unchanged from the prior two quarters, when it reached the highest level since 1991. The record of 11.1pc was set in 1990, according to Reis data going back 30 years.

Retail tenants and landlords are grappling with a jobless rate that rose to 9.8pc in November and stood at 9.4pc in December.

The best holiday sales in five years likely had little impact on vacancies, leading only to short-term leases by seasonal retailers, according to Reis.

"More likely than not, retailers will not make medium to long-term lease decisions based on holiday sales," said Ryan Severino, an economist at Reis.

Shopping centres saw a net increase in occupied space of 92,000 sq ft last quarter. That's less than the 474,000 sq ft of so-called net absorption in the third quarter, Reis said.

A year earlier, landlords had a net loss in occupied space of 2.6 million sq ft, according to Reis.

Effective rents, or what tenants actually pay, dropped to an average $16.56 (€12.70) a square foot from $16.81 a year earlier and from $16.58 in the third quarter, the company said.

Landlords' asking rents fell to $19.05 a foot from $19.18 a year earlier and $19.07 the previous three months, according to Reis.

At regional shopping centres, vacancies fell to 8.7pc in the three months to the end of December from 8.8pc both in the third quarter and a year earlier, Reis added.

Shopping centre tenants tend to sign longer-term leases, which helps stabilise vacancy rates, Mr Severino pointed out.

Fluctuations in sales don't correlate to retail vacancies quarter by quarter, said Doug Poutasse, the Boston-based head of strategy and research at Bentall Kennedy, a real estate investment adviser.

"Longer term, those things make a difference, but the leases buffer you," said Mr Poutasse. "During the downturn, landlords are willing to give retailers space with much shorter leases."

Added Mr Severino: "The sector appears to be meandering. Without clear signs of a strong economic and labour market recovery, we expect this trend to persist over the next couple of quarters."

Meanwhile, in London, cash-rich pension funds, sovereign wealth funds, insurers and wealthy individuals bought shops and offices last year as low interest rates and concern that the global economy will deteriorate made other investments riskier and less appealing.

In the last three months of 2010, Norway's sovereign wealth fund agreed to pay £448m (€537m) for a stake in Regent Street while Dutch and Canadian retirement funds signed an £872m (€1.04bn) deal giving them part of the Westfield Stratford City shopping centre next to the site of the 2012 Olympics.

Last May, the sovereign wealth fund of gas-rich Qatar bought the Harrods luxury department store for £1.5bn (€1.8bn).

"Negative real interest rates mean you aren't going to buy government bonds, corporate bonds have already had an incredible rally, gold doesn't give you a yield and the stock market is volatile," said Dan Fasulo of Real Capital Analytics.

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