By Victor Calanog
vice president of research and economics, reis inc.
MALL VACANCIES SEE FIRST-QUARTER SPIKE
In this past April’s column ( sctsm.in/4541), we discussed how neighborhood and community
centers across the country likely would face rising vacancies this year. Based on first-quarter
results, it looks like larger retail properties such as regional malls were not spared from this fate.
Mall vacancies spiked by 40 basis points to reach 9.1 percent this past first quarter — the
highest vacancy level on record since Reis began covering the property type 11 years ago. This
increase was particularly galling because vacancies began declining from a previous high of
9 percent in the second quarter of 2010 and were down to 8. 7 percent by the end of the year.
These slight declines in vacancies heralded what appeared to be a recovery, but the message
is now decidedly mixed.
Asking rents also declined by 0.1 percent, reversing slight increases posted in late 2010. Mall
rents have deteriorated so much in the past couple of years that they have reverted to levels
last seen in 2006.
What happened? Large blocks of space went vacant this past January through March in several properties; several were from tenants that had given word earlier in 2010 that they were
scaling back or vacating their occupied spots entirely. Furthermore, although retail sales might
be increasing overall, individual retailers still face many challenges, and bankruptcies and
store closures are still ongoing.
A closer look at property-level data reveals that
much of the newly vacated
space has hit malls that
lost an anchor tenant in
2009 or ’ 10. What we’re
seeing appears to be echo
effects of malls having lost
anchor tenants in the last
downturn, and now we’re
seeing blocks of nonan-chor or other anchor tenants giving up their leases.
REGIONAL AND SUPER-REGIONAL MALL VACANC Y AND RENT TRENDS
Source: Reis Inc.
On the supply side, there
was far less overbuilding in
regional malls compared to neighborhood and community centers in the last business cycle.
This doesn’t mean that regional-mall tenants are scaling back on their space requirements
entirely, however. For example, some big-box retailers have announced plans to build smaller
stores. Best Buy, for instance, will build “Best Buy Mobile” stores, which will average less than
1,500 square feet. In comparison, their existing stores have an average footprint of almost
30,000 square feet.
In terms of sales, the latest
data from the Department
of Commerce indicate that
consumers are opening
their wallets again. The
12-month change figure for
retail sales grew by 8.87
percent this past February
and averaged 7.95 percent
in the past six months.
12-MONTH CHANGE IN RETAIL SALES
This resurgence in retail
sales has yet to reflect itself in increasing demand
for retail space, however.
As revenues increase, retailers will try to service new business from existing facilities, deciding to lease space only when excess capacity has been exhausted. Even if demand begins to increase, low occupancy rates imply that it will take a while before space leases up
and vacancies tighten enough for landlords to feel confident about raising rents and taking
Source: Reis Inc.
In contrast to strong recoveries from multifamily buildings and a dip in vacancy for office properties, expect this to be another difficult year for retail properties.
Victor Calanog, vice president of research and economics at Reis Inc. ( reisreports.com), writes a monthly column
on property types for Scotsman Guide. He and his team of economists are responsible for data models, forecasting, valuation and portfolio services for clients in commercial real estate. Reach him at email@example.com.
Scott Rappaport, retail analyst for Reis’ quality-assurance group, contributed to this article.
office of capital access
u.s. small business
In addition to getting the word out in mainstream
media about small-business owners’ new ability to
refinance through the U.S. Small Business Administration’s (SBA’s) 504 program, the SBA scheduled a
13-city tour to evangelize this and other changes that
came via the Small Business Jobs Act. Between tour
stops, Steve Smits of the administration’s Office of
Capital Access shared more about brokers’ market
opportunities with the SBA.
You managed SBA-loan operations for a few
banks before joining the SBA. Why did you
Well, they asked me. Honestly, I hadn’t considered working for the government. But I have spent
22 years working with these programs. I believe in
them, and I believe it’s a critical time for these credit
enhancements for small businesses.
[There] are two challenges to small-business owners
of commercial real estate: First, many of these conventional commercial mortgages are structured with balloon payments or shorter maturities. So when the loan
comes up again, the lender is challenged because the
value has deteriorated to the point where it is difficult
to refi. In addition, small-business owners are facing a
more challenging cash-flow scenario. Refinancing to
the 504 — with below-market interest rates that are
fixed for a long term — really opens them up.
Congress has authorized $15 billion for 504
refis. Do you foresee the program reaching
It’s hard to tell. It takes a little time for lenders to submit
requests, because of the appraisal element involved,
and to see if the economy continues to improve. I see
need in certain pockets of the country — Michigan,
parts of California, Florida, certainly — but it’s still too
early to see if we’ll fully hit $7.5 billion [each year].
You’ve incorporated a “lender roundtable” in
your Jobs Act tour. What are lenders saying?
We’ve really heard from two types of lenders. There
are those who are active with us and understand how
[SBA’s] programs work. Then there are about 1,250
lenders who have not done an SBA loan for several
years [and are] doing this for the first time since the
recession. It poses a challenge for us to make sure we
are providing education and support to our lenders.
What’s your advice to brokers adding 504 re-
fis to their business?
When I was originating 504 loans, I was successful
because I had a strong relationship with my [certified
development company (CDC)]. I’d strongly encourage
brokers to make contact with one of their district offices and develop a working relationship with a lender
at a CDC. They are a resource for you. Use them.
Tony Stasiek is a producer/editor for MSN. He is based
in Seattle. For questions or comments about this
article, e-mail firstname.lastname@example.org.