The vacancy rate in U.S. shopping malls rose to 9.1% in the third quarter, up half a point from the 8.6% vacancy rate in the second quarter. That’s the highest rate since the third quarter of 2011, according to commercial real estate data analysis firm Reis.
With consumer confidence at near-20-year highs, it is reasonable to assume that shopping mall rents should be rising instead of falling as U.S. consumers spend more. That’s not what’s happening.
Long-time mall anchor stores like J.C. Penney and Sears are closing stores. Bon-Ton Stores filed for bankruptcy, Macy’s is closing stores, and Toys “R” Us already has shut down, although there may be an attempt to revive the brand.
Alexander Goldfarb, a senior analyst at Sandler O’Neill + Partners, told MarketWatch that malls in wealthier neighborhoods continue to draw well-off shoppers and attract new tenants. Part of their success is due to diversifying their space by adding theaters and restaurants.
Rising e-commerce sales are also taking a toll. The Census Bureau has reported that online sales accounted for 9.6% of all retail sales in the second quarter of this year, up from 9.5% in the first quarter. As consumers move online, retailers follow, spending more to develop their online presence to build traffic both to their websites and to the brick-and-mortar stores.
The average mall rent in the third quarter fell 0.3% to $43.25 a square foot in the third quarter, down from $43.36 in the second quarter, according to Reis data published by MarketWatch. The last time rents fell on a quarter-over-quarter basis was in 2011.
Retailers may even be shying away from make a long-term commitment to mall space in low-performing locations, choosing instead to invest in temporary “pop-ups” that have a physical presence to draw traffic in those places at a lower cost and for a shorter period.