Retail Rents on the Rise as Vacancies Dwindle

July 7, 2014

The U.S. retail real estate market is heating up, with shrinking vacancies allowing landlords to raise rents. At strip malls, vacancies fell to 10.3 percent in the second quarter and are nearly a percentage point lower than a post-recession high set in the third quarter of 2011, according to Reis Inc., a commercial data provider. At traditional malls, vacancies held at 7.9 percent in the second quarter, dropping from a high of 9.4 percent in the third quarter of 2011, according to Reis.

Retail landlords are raising rents as space becomes a premium. Rents at U.S. malls rose for the 13th consecutive quarter, rising 0.4 percent in the second quarter to $40.32 a square foot a year. Rents at U.S. strip malls posted their 11th consecutive quarter rise, increasing 0.5 percent in the quarter to $19.51 a square foot. 

"This is the continuation of a slow, but decidedly upward trend in quarterly rent growth over the last few years,"  Ryan Severino, a senior economist at Reis, told The Wall Street Journal.

Builders are projected to complete 45.2 million square feet of retail space this year. In 2015, they are projected to add 71.5 million square feet of retail space in 63 markets, according to the CoStar Group, a real estate research firm. For comparison, in 2007, builders added 210 million square feet. 

"We'll see a moderate increase in the coming quarters in construction," Suzanne Mulvee, a director of retail research at CoStar, told WSJ. "But it's going to be a couple of years before we see construction getting back to even half the pace of what it was in 2007."

Source: “Retail Rents on Rise as Space at a Premium,” The Wall Street Journal (July 3, 2014)