Shoppers stroll through an almost empty Palisades Center Mall in West Nyack, New York, on February 3, 2021.
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If you’ve recently noticed more darkened windows and empty shops in the mall, you’re not alone.
According to the commercial real estate division of Moody’s Analytics, the vacancy rate for regional malls in the United States reached a record 11.4% in the first quarter of 2021, up from 10.5% in the fourth quarter of 2020.
The increase of 90 basis points was the highest the company has ever seen, surpassing the record rise of 80 basis points in the first quarter of 2009, in the midst of the Great Recession.
“The malls are absolutely against the ropes,” said Victor Calanog, leader of Moody’s commercial real estate economics division. “They were on the ropes even before Covid. … It’s almost no step to say we have a record vacancy rate in malls because we’ve been breaking that record all year.”
The U.S. has about 1,000 malls, according to commercial real estate services firm Green Street. Moody’s tracks about 700 for analysis.
Buyer traffic to many closed malls, often located in the suburbs, has steadily declined over the years, with Americans spending more online. This pattern was only accelerated by the global health crisis. Many mall retailers, including department stores, have increasingly struggled to maintain relevance with their customers. Last year several mall-based companies, including JC Penney, Neiman Marcus, Lord & Taylor, Brooks Brothers and J.Crew, filed for bank protection.
While other commercial real estate sectors, such as multi-family housing buildings, show better progress, retail remains the most under pressure, according to Moody’s, in its latest quarterly report.
Industrial real estate has been the most resilient type of property, with a demand for warehouses that store goods and fulfill e-commerce orders. Calanog said rents for warehouse and distribution ships across the country have not been negative so far during the duration of the pandemic.
Office space, such as retail, continues to increase vacancy rates and declining rents. Many companies are still wondering what the future of the workspace will look like. Companies are considering removing footprints from their offices and allowing employees to agree to work from home at least part of the time.
Forty-eight of the 79 U.S. subway areas that Moody’s runways suffered from an effective drop in office rent during the first quarter. Among the hardest hit areas were Charleston, South Carolina, with a 3.5% quarter-on-quarter drop; New York, 1.8% more; and San Francisco, 1.6% less.
Within the retail sector, 40 of the 77 meters saw a decline in effective rents during the first quarter, Moody’s found. Here, retail only represents neighborhood and community malls, not indoor malls, the firm noted.
The vacancy rate for these retail properties (again, not including malls) was 10.6% over the last period, slightly more than 10.5% in the fourth quarter.
“It’s a continuous balance between store closures and openings,” Calanog said of the retail industry. “We want to be fair, there are companies that open stores … But right now we’re losing space, and that’s what the data reflects.”
Today the growth of retail stores has been largely concentrated in the price and discount space, with companies such as Dollar General, Lidl, TJ Maxx, Burlington and Five Below planning larger expansions. Beauty businesses Ulta and Sephora also continue to open stores, anticipating a strong post-pandemic rebound in visits to brick and mortar stores.
But this growth will not always be enough to offset the decline elsewhere.
In a separate report released this week, UBS predicted in a base case that there will be approximately 80,000 retail store closures nationwide in the next five years, affecting approximately 9% of all retail stores. Clothing, sporting goods and office supplies stores are expected to drive much of the closures, UBS said.
It counted 115,000 malls, a figure that includes malls, malls, outlets and other lifestyle centers, in the United States by the end of 2020, compared to 112,000 in 2010 and 90,000 in 2000.
– CNBC Nate Rattner has contributed to this data visualization.