Mall rents continued to fall in second quarter
The great American mall shakeout continued in the second quarter, with Class A malls in stronger markets flourishing and lesser properties struggling.
Mall tenants are the beneficiaries. Rents at malls fell 4.6% from Q1 and now stand 7.1% lower than they were one year ago, according to JLL’s Q2 Retail Outlook. Due to an abundance of anchor store closings, year-to-date net absorption surpassed 2 million sq. ft.
Power centers were the only other retail properties to post a negative net absorption figure-that of 900,000 sq. ft., and after-effect of the Toys “R” Us bankruptcy. While gross absorption at power centers was comparable with previous quarters, move-outs totaled 7.6 million sq. ft.
Net absorption is arrived at by subtracting total retail space leased in a given period by space vacated. A negative rate indicates a renter’s market and, usually, lower rents. Gross absorption is simply the total square footage leased during a period.
Mall move-outs in the second quarter totaled 7.8 million sq. ft. — the lion’s share of them, 4.8 million sq. ft., in low- to mid-rated malls. Move-outs at malls with 5-star ratings from CoStar registered move-outs of less than 100,000 sq. ft.
As always in real estate, the situation is all about location. Malls “with strong locations were able to nab high-productivity tenants like Whole Foods, Wegmans, and Nordstrom,” said the JLL report. “Those in fairly good locations were leased by tenants like Dick’s, Belk, and At Home. Those with only an average location had a harder time finding a replacement tenant, and when they did it was usually a lower-performing non-retail tenant.”
Philadelphia performed particularly strong during the quarter, due in large part to strong demand at King of Prussia and Horsham/Willow Grove.
Retail rents over all categories of retail rose a healthy 5.4% during the quarter. Posting year-over increases were stand-alone retail at 8.1%, shopping centers were at 3.5%, and power centers at 2.7%.
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