Empty space in regional shopping malls climbed to 8.4 percent in the first quarter of 2018, marking the highest vacancy rate since 2012. The vacancy rate was even higher for community shopping centers (10 percent), according to Reis Inc.
Vacancies Based on Location, Location, Location
Reis analyzed data from 77 metropolitan areas. The number of metros that had higher retail vacancies last quarter increased to 35,from 26 in the prior quarter. Metros with the largest retail vacancy hikes include Lexington, Tacoma, Omaha, Nashville, and Wichita.
In a number of malls, the anchor department stores such as Macy's or Sears may be owner occupied.These owner-occupied department stores do not factor into the overall mall vacancy rate.
Fewer Malls Being Built
The retail real estate market is tempered by a lack of new construction. During the first quarter, new mall construction was the lowest since before 2000. Only 15 metros recorded new completions in the quarter.
Net absorption was low at 376,000. However, any positive absorption is a welcome surprise since the outlook for the rest of the year is darkened by the numerous Toys "R" Us, Bi-Lo, and other stores that are expected to close in the next few quarters.
Shift to Online Shopping
The numbers show that bricks-and-mortar malls and shopping centers continue to be hurt by shifting consumer spending patterns, particularly the increasing use of online retail. Numerous department stores and other retailers that traditionally have been mainstays of shopping areas have been contracting or have failed.
In this changing world for retail, effective property tax management has become more important than ever before. Stores can't afford to blindly accept that their property is being correctly assessed. Retail vacancies and all issues that impact the bottom line must be factored in or the tax assessment and resulting bill will be unfairly inflated.