Faced with a slew of bankruptcies and store closures among some of their largest retail tenants, mall owners across the country are finding themselves with a growing number of vacancies.
According to a new analysis from Moody’s Analytics, the vacancy rate for regional and super regional malls in the United States hit 11.4% in the first quarter of this year — a 90 basis-point hike in a single quarter and the highest rate reported by the financial services firm. The surge also surpassed the record 80 basis-point rise in the first quarter of 2009, around the time of the Great Recession.
The retail sector as a whole saw a vacancy rate of 10.6% during the latest three-month period — a slight gain from the previous quarter’s 10.5%. What’s more, Moody’s noted that 40 out of 77 metros logged a decline in effective rent during the first quarter, with only the market of Tacoma, Wash., posting positive effective rent growth for the latest 12-month period. (The firm added that it does not report mall rents at the metro level — only neighborhood and community shopping centers.)
“Both office and retail are going through a structural change that will continue to cause many firms to look closely at their respective footprints,” explained Thomas LaSalvia, a senior economist specializing in commercial real estate at Moody’s. “As their leases expire, it is likely some will move or downsize, putting further downward pressure on rents and vacancy rates through this year and into 2022.”
Last year, amid the COVID-19 pandemic, a number of boldface anchor tenants and nationwide chains filed for Chapter 11 protection as foot traffic slowed and, in many cases, stopped. Sales subsequently slumped, and retailers took steps such as holding off on paying rent, terminating their existing leases or allowing their contracts at malls to expire in a bid to maintain liquidity.
Some experts suggest that even more closures are imminent: According to a recent report from UBS researchers, about 80,000 stores — or roughly 9% of the total retail footprint in the country — are predicted to permanently close their doors over the next five years. That would bring the number of retail locations to 797,000 in 2026 from 878,000 in 2020.