Buyers pass through an almost empty Palisades Center Mall in West Nyack, New York, February 3, 2021.
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If you’ve recently noticed several dark windows and empty shops at the mall, you’re not alone.
The vacancy rate for regional malls in the United States reached a record 11.4% in the first quarter of 2021 from 10.5% in the fourth quarter of 2020, according to the commercial real estate division of Moody’s Analytics.
The increase of 90 basis points marked the highest record the company has ever had, surpassing the record of 80 basis points recorded in the first quarter of 2009, during the period of great recession.
“Shopping malls are absolutely still on the ropes,” said Victor Calanog, head of commercial real estate at Moody’s. “They were on the ropes just before Covid. … It’s almost possible to say we have a record rate of mall vacancies, because we’ve broken that record all year.”
The United States has about 1,000 malls, according to commercial real estate services Green Street. Moody’s is tracking about 700 of them for analysis.
Shopper traffic to many closed malls, often located in the suburbs, has steadily declined over the years, with Americans spending more online. This model has only been accelerated by the global health crisis. Many of the mall retailers, including department stores, have increasingly strived to remain relevant to their customers. Last year, several mall-based companies – including JC Penney, Neiman Marcus, Lord & Taylor, Brooks Brothers and J.Crew – filed for bankruptcy protection.
While other commercial real estate sectors, such as multi-family apartment buildings, are making better progress, retail remains the hardest hit, Moody’s said in its latest quarterly report.
Industrial real estate has been the most resilient type of property, the demand for warehouses that store goods and meet growing e-commerce orders. Rents for storage and distribution properties across the country have not turned negative so far during the pandemic, Calanog said.
Office space, like retail, continues to see rising job vacancies and falling rents. Many companies are still facing the future of the workspace. Companies consider removing office traces and allow employees to accept work from home at least part of the time.
Forty-eight of the 79 U.S. metropolitan areas on which Moody’s runways suffered an effective decline in office rent in the first quarter. Among the hardest hit areas were Charleston, South Carolina, down 3.5% from the quarter; New York, down 1.8%; and San Francisco, down 1.6%.
In the retail sector, 40 of the 77 subways recorded a decrease in actual rent in the first quarter, Moody’s found. Here, retail is only representative for neighborhood and community shopping centers, not for indoor shopping centers, the company noted.
The vacancy rate for these retail properties (again, not including malls) has been 10.6% recently, up slightly from 10.5% in the fourth quarter.
“There’s a constant balance between store closures and openings,” Calanog said of the retail industry. “We want to be fair, there are companies that open stores. But now we’re losing space and that reflects the data.”
Today’s retail store growth has largely focused on off-price and discount space, with companies such as Dollar General, Lidl, TJ Maxx, Burlington and Five Below planning larger expansions. The beauty businesses Ulta and Sephora are still opening stores, anticipating a strong post-pandemic comeback in visits to brick and mortar stores.
But this increase will not always be enough to offset the decline elsewhere.
In a separate report released this week, UBS predicted in a baseline scenario that there will be approximately 80,000 store closures nationwide over the next five years, impacting approximately 9% of all retail stores. retail. Clothing, sporting goods and office supplies stores are expected to drive much of the closures, UBS said.
It counted 115,000 shopping centers – a number that includes strip centers, malls, stores and other living centers – in the US by the end of 2020, compared to 112,000 in 2010 and 90,000 in 2000.
– CNBC Nate Rattner contributed to this data visualization.