If Retail Is Recovering, Why Are Mall Vacancies Still Rising?

Retail may be in the midst of a rebound, but mall owners are still feeling the sting of store closings.

According to a new report from real estate research firm Reis Inc., the U.S. department store vacancy rate rose to 9.1 percent in the third quarter, up from 8.3 percent in 2017 and beating last quarter’s rate of 8.6 percent, already the highest since 2012. The uptick can be blamed in part on the significant space once occupied by Bon-Ton, which shuttered more than 200 locations this year amid bankruptcy proceedings, and Sears, which has slashed its store count every quarter for several years, with plans to close at least 183 in fiscal 2018. The square footage left behind by a big-box retailer isn’t easy to fill, either — after all, most incoming tenants don’t need the 136,049 square feet an average Sears store occupies.

As a result, many mall owners are converting the space into mixed-use facilities, courting businesses like gyms, movie theaters and coworking spaces to fill the void and draw in clientele that may otherwise be lost to competitors like Amazon. Doing so takes time and money, however, so in the meantime, there are many storefronts that sit empty.

These closures have counteracted some of the recovery elsewhere in the sector, so the overall retail vacancy rate remained flat at 10.2 percent, per Reis.

Another research firm, CoStar, found malls and lifestyle centers experienced negative absorption, or shrinking occupancy, in the second quarter — the first time since the years following the recession — with supply outpacing demand by 1.2 million square feet.

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