Shoppers walk through a nearly empty Palisades Center Mall shopping center in West Nyack, New York, Feb. 3, 2021.
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If you’ve noticed more darkened windows and empty stores in the mall recently, you’re not alone.
Regional malls vacancy rates in the United States hit a record high of 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 90 basis point increase was the highest the firm has ever seen, surpassing the record high of 80 basis points in the first quarter of 2009, during the heat of the Great Recession.
“Shopping centers are definitely still on the rise,” said Victor Calanog, head of the commercial real estate economics division at Moody’s. “They were on the ropes even before Covid … It’s almost over now to say we have a record of malls vacancy because we broke that record all year.”
According to Green Street, the US has about 1,000 shopping centers. Moody’s is tracking about 700 of them for its analysis.
Shopping traffic to many closed malls, often located in the suburbs, has steadily declined over the years, with Americans spending more online. This pattern was only accelerated by the global health crisis. Many shopping center retailers, including department stores, are increasingly struggling to stay relevant to their customers. Last year, several shopping center-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 apartments, are making better progress, retail remains the most under pressure, Moody’s found in its latest quarterly report.
Industrial real estate has been the most resilient type of real estate, with an increasing demand for warehouses that store goods and fulfill e-commerce orders. Rents for warehouses and distribution properties across the country have so far not turned negative over the duration of the pandemic, Calanog said.
Office space, just like shops, continues to contend with increased vacancy and falling rents. Many companies are still grappling with what the future of workspace will look like. Companies are considering getting rid of their office footprints and allowing employees to work from home, at least some of the time.
Forty-eight of the 79 US metropolitan areas that Moody’s tracks suffered in the first quarter with an effective decline in office rent. Among the worst affected areas were Charleston, South Carolina, which was down 3.5% quarter on quarter; New York, down 1.8%; and San Francisco, down 1.6%.
Within the retail sector, 40 of 77 subways recorded a decrease in effective rent during the first quarter, Moody’s found. Here, retail is only representative of neighborhood and community shopping centers, not indoor shopping centers, the company noted.
The vacancy of these retail properties (again excluding shopping centers) was 10.6% in the last period, a slight increase from 10.5% in the fourth quarter.
“It’s an ongoing balance between store closings and store openings,” Calanog said of the retail industry. “We want to be honest, there are companies opening stores … But right now we’re losing space, and that’s what the data reflects.”
Retail retail growth today is largely concentrated in the off-price and discount space, with companies like Dollar General, Lidl, TJ Maxx, Burlington and Five Below charting larger expansions. Beauty companies Ulta and Sephora are also still opening stores, in anticipation of a strong post-pandemic rebound on visits to brick-and-mortar stores.
But that growth will not always be enough to make up for the decline elsewhere.
In a separate report released this week, UBS predicted in a baseline scenario that there will be about 80,000 store closings nationwide in the next five years, impacting about 9% of all stores. Clothing, sporting goods and office supply stores are expected to generate a large portion of the closings, UBS said.
At the end of 2020, it had 115,000 shopping centers – including strip centers, malls, outlet centers and other lifestyle centers – across the US, compared to 112,000 in 2010 and 90,000 in 2000.
– CNBCs Nate Rattner contributed to this data visualization.