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Reis: Performance rift widens in retail space

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Reis: Performance rift widens in retail space

Thenational vacancy rate for neighborhood and community shopping centers fell 10basis points to 9.9% in the second quarter, while the vacancy rate for regionalmalls ticked up 10 basis points to 7.9%, according to Reis Inc. data.

RyanSeverino, senior economist and director of research at Reis, characterized thesplit as a "divergence of fortunes" between shopping centers, whichlagged in the recovery but are now performing steadily, and regional malls,where a clear divide exists between the performance of class A properties andtheir lower-quality counterparts.

"Manytraditional mall tenants are struggling, forcing landlords to resort to signingleases with nontraditional tenants. And for many traditional tenants, theoutlook is not good," Severino said. "The heyday of department storesis clearly in the past while apparel retailers (for example) compete fiercelywith e-commerce."

Still,the mall vacancy rate was only 10 basis points off its low of 7.8%, logged inthe 2015 fourth quarter.

Netabsorption among neighborhood and community shopping centers totaled 3.3million square feet in the second quarter, as 1.4 million square feet of newspace came online. Asking and effective rents in the shopping center space grew0.4% and 0.5%, respectively, on a sequential basis, and grew 2.0% and 2.1%,respectively, year over year.

Amongregional malls, asking rents increased 0.5% quarter over quarter and rose 2.1%year over year.

Severinonoted that the issues the retail sector is grappling with are structural,rather than cyclical, in nature.

"Therift between winners and losers at the property level will widen out over time.Increasingly this looks like a permanent feature of the market," he said."The era of pervasive, strong performance in the retail market could begone for good."