Mall vacancy rose to highest level in seven years

Mall vacancy rates rose to 9.1% in the third quarter, their highest level in seven years. Many of the older shopping centers that lack trendy retailers, lively restaurants, or other forms of popular entertainment continue to lose tenants, or even close down.  Much of the retail sector has bounced back this year after years of losing out to online competitors that have decimated some of the industry’s biggest names, including department stores like Macy’s and retailers like Payless ShoeSource.

But in 2018, shares of retail stocks are enjoying their biggest rally in years, boosted by better-than-expected earnings and a nationwide shopping spree for everything from electronics to apparel. Robust job growth and a solid economic outlook have pried open wallets. Consumer confidence hit an 18-year high last month, while the Dow Jones Industrial Average set another record Wednesday. Wages were already starting to tick higher when Amazon.com Inc. announced this week it was raising its minimum wage to $15 an hour, a move that could put more pressure on other big employers to boost pay.

That momentum now looks poised to carry into the crucial holiday shopping season, which begins next month. The National Retail Federation on Wednesday said it expects holiday retail sales in November and December to increase by 4.3% to 4.8% over last year. The forecast, which excludes cars, gasoline and restaurants, compares with an average annual increase of 3.9% over the past five years, the NRF said.

But many lower-end malls are still struggling to benefit from the economic revival, especially in some of the more economically depressed areas in Pennsylvania, Ohio and Michigan. They suffer from a glut of shopping centers but not enough consumers.  The average rent for malls fell 0.3% to $43.25 a square foot in the third quarter, down from $43.36 in the second quarter, according to data from real-estate research firm Reis Inc. The last time rents slid on a quarter-over-quarter basis was in 2011.   “The enclosed mall has been bearing the brunt of this consolidation over the past 24 months, which has resulted in higher vacancies,” said Thomas Dobrowski, executive managing director at NKF Capital Markets.   Department store closings by Bon-Ton Stores Inc. and Sears Holdings Corp in the third quarter accounted for much of the jump in the vacancy rate, said Reis, though a number of owner-occupied Sears stores were excluded from the numbers, since they don’t have leases.