Slight improvement in Q2 retail vacancy

Retail vacancy rates improve nationwide, with malls benefiting from improvements to sector fundamentals.

Still showing wild regional disparities, commercial real estate companies with a stake in the retail sector see gradual improvement in fundamentals as vacancy rates inch lower.

The National Real Estate Investor reported figures from the CoStar Group, that found overall retail vacancy in the U.S. decreased by 40 basis points year-over-year, settling at 6.7 percent.

"The retail market passed a milestone of sorts in the second quarter by recording year-over-year rent growth for the first time since 2008," Ryan McCullough, CoStar's real estate economist, said in his mid-year note. "By most measures, second quarter was not out of the ordinary for the post-recession, Internet-friendly world – net absorption was modest by historical standards and supply growth was as quiet as ever. But the cumulative effect of three years of slow recovery has gradually nudged fundamentals closer to equilibrium."

While vacancy at malls fell by 30 basis points to 5.9 percent, shopping centers posted the highest vacancy rate of all the retail property types of 10.3 percent. However, that figure has actually declined by 40 basis points since last year, showing mounting improvement. Overall quoted rented rose to $14.50 per square foot, a 21 basis point rise compared to the same time last year mall and with shopping center rents trending downwards, according to CoStar data.

Different locations, similar results
Even though Reis data revealed different trends, the disparity can be attributed to the regional performance fluctuations in the retail sector. For instance, major metros will typically outperform rural or suburban markets. Depending on what markets were surveyed, the data will shift. However, both data sets revealed a slight, if not marginal, gain in retail vacancy.

"Although demand remains weak, new supply remains virtually non-existent, which should support the ongoing recovery in the segment," said Ryan Severino, senior economist and associate director of research at Reis.

Business 2 Community reported the average vacancy rate for malls in the U.S. was 8.3 percent at the conclusion of the second quarter, down from 8.9 percent a year ago and the lowest rate in more than four years, according to Reis data.

"Retail is the canary in the coal mine," Scott Throckmorton, of Argus Investment Realty, told ABQ Journal. "When the economy turns, it's the first to shed space and jobs. When there's a recovery, it's the first to bounce back."

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