Mall Vacancies At Highest In 11 Years; Strip Malls Vacancy Rate Highest Since 1990

Tyler Durden's picture

When buying story stocks, one can believe the hype behind the story, or actually look at the facts. And when it comes to malls, and commercial real estate in general, the double dip, despite that whole consumer is recovering myth, is here. The WSJ report that "mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%." But wait: wasn't the resurging US consumer supposed to be able to carry the overbloated US retail front? That's part of the "story" - as for the "fact" Howard Davidowitz summarized it best: "We've got 21 square feet of selling space for every man, woman and child in this country." Perhaps it is time for the Fed to (again) start buying up empty retail boxes: because even the Fed knows what happens to equilibrium price when every bank is trying hard to reignite the CMBS market.

From the WSJ:

Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.

The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990.

In 2005, the mall-vacancy rate hit a low of 5.1%. For strip centers the boom-time low vacancy rate was 6.7% that same year.

Yet nothing seems able to derail the two year long REIT fest. Not even lack of cash flows from insolvent tennants:

Not all retail properties have suffered as much, especially on the high end. Large, publicly traded mall owners like Simon Property Group Inc. and Taubman Centers Inc., which tend to own top-tier properties, have trimmed their vacancy rates to 7% or lower and lifted their lease rates in the past year, buoying their stock.

But a broader glut has struck some of the exurbs that saw heavy housing development during the boom, where malls and strip centers built for growth that never came. More than one billion square feet of retail space was added in the 54 largest U.S. markets since the start of 2000, according to CoStar Group's Property & Portfolio Research Inc. of Boston.

The next shoe to drop in the retail story is the tsunami of retailer bankruptcies, which has already claimed many:

In part, the decline reflects a continued drag on spending from the recession. But many retailers that had been stalwart mall- and strip-center tenants, like Borders Group Inc. and Blockbuster Inc., have floundered. Even successful chains have closed and shrank hundreds of stores as they retrenched.

Vacancies and falling rents have especially hurt strip centers. Some regional grocers have been clobbered by the downturn and new competition from big box stores like Wal-Mart, hurting strip centers anchored by their stores.

The Great Atlantic & Pacific Tea Co., the onetime retail goliath that had shrunk into a northeastern supermarket chain operating grocery stores such as A&P and Pathmark, sought bankruptcy protection in December and said last month it was closing 32 stores.

Some landlords have hedged against the impact of online shopping by adding more tenants like restaurants, entertainment venues, fashion stores and other wares not often bought online. Longtime strip center tenants like dentists and tax preparers are even more coveted now.

Yet for those who recall the summer of 2008, it was precisely the restauranteurs that were the next to go, when oil passed $120.

With a slew of retailers preparing to file for bankruptcy in the next 3-6 months absent a massive drop in commodity prices, the mall situation is about to get far worse. In the meantime, while the "story"  (no matter how flawed - after all Ackman wrote a 100+ page presentation to make it very credible) fizzles, keep buying the GGP hype. And the "FD" in general.

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Ahmeexnal's picture

And educational institutions are next to break.

carbonmutant's picture

Not before they price themselves out of the market.

Everybody is raising prices to make up the difference...

MachoMan's picture

The local university with ~25k students is expected to get an influx of 5k chinese students within the next two years.  Priced out to americans maybe...

sethstorm's picture

Not if subsidies are taken into account.


MachoMan's picture

yeah, we have a lottery...  I'm pretty sure if you're incredibly downsy and slept through highschool or were truant is about the only ways you don't get a chunk.

firstdivision's picture

So we should expect REIT's to surge by 50% on this news.  QE3 is the Fed buying up all empty retail space and fill it with loller-dollars.

Vandelay's picture

Yes, we are already planning MARP, Mall Asset Recovery Plan, funded by the taxpayer for the Banksters.


camaro68ss's picture

This news should be a 2% DOW booster

Temporalist's picture

That is a silly plan...they will instead give people iPads and Zynga dollars (zcoins) so they can buy Facebook apps and plant virtual farms that they can pretend to eat with.

Milton Waddams's picture

MARP II to consist of employing people to walk around malls carrying shopping bags to create the impression that consumption is occurring.  "Innovative" program to be accompanied by a Fed research paper on methods to influence herd-like behavior and its positive shock to consumer demand.

MARP III to consist of parking unsold GM cars in mall parking lots to create the illusion of mall traffic.  Facility to be accompanied by a Fed research paper touching on innovations in analysts reasearch methods; specifically the use of near real time satellite feeds to gauge mall traffic and why falsifying said traffic provides a benefit to demand for common stocks and therefore the wealth effect.

silvertrain's picture

That would have an effect if not for people not having money/job/ or even credit..The only ones that are buying anything are the squatters that are not paying there morgage..

DonnieD's picture

The USDA will buy all of the vacant storefronts and put in SNAP retail outlets to handout food stamps. The economic impact will be immeasurable. It will add at least 1% to GDP.

Don Birnam's picture


Indeed, move the entire SNAP kit and kaboodle under the Fed umbrella. Voila ! Another "off-budget" item thus producing prodigious cost savings, about which the Congressional and White House budgeteers can boast.  

Ruffcut's picture

Who do ya know can start up some retail biz in a strip mall. The only thing with growth potential is payday advance outlets.

Or, the new franchise of Ruffcut's Pawn and Porn Shop.

chet's picture

The REITS have been divorced from fundamentals for a long time.  I think they have so much money, and their shareholders don't understand real estate valuation, so they can just keep buying up properties.


Howard Davidowitz is hilarious.  He's great on TV or radio.

tj3's picture

apartment rents UP...commercial (non-high end) down?

Temporalist's picture
After Months of Growth, Signs of Weakness in the Manhattan Real Estate Market


"After more than a year of slow but steady growth, the Manhattan real estate market saw declines in price and sales volume in the first three months of 2011, raising the question of whether the city may finally be following the rest of the nation into a double dip in housing prices."

the not so mighty maximiza's picture

rally time on this news

mt paul's picture

mmmmm.. strip malls 


consumer lap dances...

JimBobOMG's picture

We are getting more tolerant to the drug. Lets see if we can get through the withdrawals.

long juan silver's picture

The end of mall culture couldn't come soon enough.

Dick Darlington's picture

This is a clear sign of the self-sustaining GLOBAL recovery. Just like the high priest of the Euro-Ponzi, mr Rehn, told us today, again, that the European "recovery" is self-sustaining. Well duh, all the signs of that are there for everyone to see: countries going bankrupt.

Ruffcut's picture

The recovery is non existent.

IF all of doomers died, the outlook of doom would be the only thing that is self-sustaining.

TheMerryPrankster's picture

a bit off topic, but Dick Darlington, have you ever been to a bar in Australia named "Susan's"?

Seasmoke's picture

families should start renting this space.......put a dividing wall in, sell some shit in front and live in the back

hedgeless_horseman's picture

In the back, behind the dividing wall, is where the real money is made.

AN0NYM0US's picture

I think that would be the norm for industrious immigrants; have you ever purchased a gallon of milk from that little store at the corner? 

Annyong hashimnikka

MachoMan's picture

This is exactly what is going to happen with CRE...  it's going to be converted to either mixed or residential use.  All of the "business" that used to be conducted by the properties will have left us for the forseeable future.

Seasmoke's picture

Other than the Apple Store , i never see anyone in any of the other stores in the Mall near me , let alone spending any money.....must say it looks like a cool place to hang out all day and kill a day cheaply

flattrader's picture

What do you sell?  When you have customers...

Temporalist's picture

And the funny thing about the Apple store is that most people waiting in line are there for repairs not to buy something.  I think it strange that most people hate waiting in lines but Apple fans love it for some reason.

williambanzai7's picture

Is it a tsunami of retail bunrupcies or rare but notable exceptions?

A Man without Qualities's picture

it depends what you're smoking...

John Self's picture

I was just noticing the severity of this issue.  I live in the DC area, which has (until the gvt. shutdown) fared quite well during the recession, relatively speaking.  But I recently drove through Tysons Corner, which is among the more upscale shopping areas and is near several very affluent suburbs.  It's a bit shocking if you look closely.  Two empty big boxes where Circuit City used to be.  One entire building vacated by Borders and Filene's Basement.  A building that has housed 3 separate furniture retailers in the past year, and another one that has housed 2 other furniture stores in the past 2 years across the street.  A closed Bed Bath and Beyond, a closed Tower Records.  A few of the medium-rise office buildings appear to have no tenants.  And that's not even getting into the 2 malls, which are full of boarded-up spaces.

Notably, though, there is still al ot of activity in the area (for now, anyway).  That's because several government contractors have office buildings and construction is underway on extending the Metro through the area.  Without the government, it would be approaching a ghost town.  If this is what it's like in an upscale district of a city that has weathered the downturn well, I can only imagine what strip malls in Arizona and Nevada look like.

earnulf's picture

Recently complete a swing through the SW (Albequerque, Flagstaff, Phoenix) and despite fairly steady traffic throughout, the malls we passed did not seem to be all that busy.    I just chalked it up to lower population density, but now on second thought one has to wonder if the downturn is not impacting these areas as well.    College towns like Flagstaff may be able to better weather the changes, but some of the smaller cities without may be hurting significantly.

TruthInSunshine's picture

If you want to see brand new ghostmalls and industrial complexes and office buildings (NEW), you don't have to go to China.

Go to Glendale, Casa Grande, Marana or Queen Creek.

TheMerryPrankster's picture

Or try the Inland Empire of Southern California. Ontario airport practically has tumbleweed blowing on the tarmacs, most of the gates are shuttered. There are literally blocks of brand new (never occupied) retail and light industrial, strip malls and business parks that have no occupants and big "for lease" signs near the street. Blocks of them.

There 's a homeless camp about 4 blocks from the airport.

Thank God for the economic recovery, I don't know what things would be like if we were still in a recession(sarcasm).'s picture

in Arizona?  i've never seen so much empty space in my 25+ years of living here.  what is really glaring to me is that even Scottsdale wasn't recession proof.

Monday1929's picture

This was unforeseeable.

The Axe's picture

They suspended  FASB mark--to - mark rules anyway, so NO one has to take a markdown to net capital who cares..

NotApplicable's picture

I haven't been to a mall in years. Then again, I only manage to make it into Wally World about once a year (last minute Christmas items, and stuff I couldn't find elsewhere), so I'm kind of ahead of the curve on the whole deconsumption thing.

As for durable consumer goods, we buy almost everything from craigslist, et al.

Good To Great's picture

This is inflationary, right?

drink or die's picture

People buy things at malls?  Why would I pay 2-3x the price for something when I can have it delivered to my door without having to deal with hoardes of mouth breathers and their brat kids?

TroyPDX's picture

Last time I went to a mall I swore it would indeed be my last time... surrounded by shambling, vacant eyed hordes of obese suburbanites clutching their five minutes of happiness in Saks bags. It made me want to off myself.

Bam_Man's picture

Because you enjoy competing with them for parking spaces while burning $4.00/gallon gas?

spank-of-america's picture

Not once that online sales tax gets passed.


andybev01's picture

Those shuffling hoards are where the zombie apocalypse virus is germinating.

Stay far away from them or you will be infected.

bank guy in Brussels's picture

Quite a few haunting videos of 'dead malls' on YouTube:

Yes, that's North America, shopping malls ... here we have few malls, and are still walking to local markets with a shopping cart on two wheels ... some of the men here use a cart with a wooden platform on the bottom to hold a case of bottled beer.