According to a report by property research firm Reis Inc., the U.S. mall vacancy rate surged to 9.1% in first quarter 2011 from 8.7% in the previous quarter, despite a rise in shopping activities with the gradual revival of the economy. The report disclosed that the current mall vacancy rate was the highest ever recorded in the last decade, signifying a decline in demand for retail space. The report further revealed that the present strip mall vacancy rate was relatively flat at 10.9% compared to fourth quarter 2010.
The report cited that the recession had resulted in less construction activities due to liquidity crisis, leading to a supply-demand imbalance. Industry data revealed that only about 83,000 square feet of new space was added to the 2 billion square feet of existing strip mall space, which was arguably the smallest amount since 1999.
Strip mall asking rents or the amount of rents demanded by the owners, and effective rents or the amount of rents actually received by the owners after taking into account such benefits as free rent and interior work, both dipped 0.1% during the reported quarter to $19.03 and $16.55 per square foot, respectively. Dayton, Ohio reported the highest increase in strip mall vacancy at 17%, while that in San Francisco was the lowest at 3.6%.
The recent research report is a cause for concern for strip mall owners like Equity One Inc. (EQY) and Kimco Realty Corporation (KIM).
Equity One owns, manages and develops neighborhood and community shopping centers in the U.S. As of December 31, 2010, the company owned 189 properties spanning 19.5 million square feet of space, the majority of which are anchored by leading supermarkets, pharmacies and large retail stores. Equity One has a diverse tenant mix – a hedge against tenant concentration risk, thereby ensuring a steady source of income.
Together with its subsidiaries, Kimco Realty is the largest publicly traded owner and operator of neighborhood and community shopping centers in the U.S., with interests in 951 properties spanning 138 million square feet of space in 44 states across the country, along with Puerto Rico, Canada, Mexico, Chile, Brazil and Peru. The company also operates complementary businesses that include merchant buildings, private preferred equity, and real estate capital and advisory services.
The rating on both Equity One and Kimco Realty is currently ‘Neutral’ with a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation and indicates that the stocks are expected to perform in line with the overall U.S. equity market for the next 1−3 months.
EQUITY ONE INC (EQY): Free Stock Analysis Report
KIMCO REALTY CO (KIM): Free Stock Analysis Report
Zacks Investment Research
