Local Retail Rents Are Increasing Again

July 3, 2014

Shopping-center owners continued to increase rents in the second quarter as a host of retailers in expansion mode jockeyed for dwindling available space in existing high-quality centers.

Vacancy rates at U.S. malls and strip centers remained minimal in the second quarter such that retailers seeking to move into the best centers often must wait for another tenant to leave. Landlords and analysts generally don't expect a significant pickup in retail construction for at least a year or two.

Vacancies at strip centers declined to 10.3% in the second quarter, down 0.10 percentage point from the first quarter and now nearly a percentage point lower than a postrecession high set in the third quarter of 2011, according to data from Reis Inc. At malls, vacancy remained at 7.9% for the third consecutive quarter, down from a high of 9.4% set in the third quarter of 2011.

Meanwhile, the shrinking vacancies allowed retail landlords to raise rents at malls for the 13th consecutive quarter and at strip centers for the 11th. Rents at malls rose 0.4% in the second quarter to $40.32 a square foot a year, while rents at strip centers rose 0.5% to $19.51. Strip centers are rows of small shops often sharing a common parking lot.

"This is the continuation of a slow, but decidedly upward trend in quarterly rent growth over the last few years," said Ryan Severino, a senior economist at Reis, which compiles its data from 77 U.S. metropolitan areas.

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