Buyer walks through an almost empty Palisades Center Mall on February 3, 2021 in West Nyack, New York.
Mike Segar | Reuters
If you have recently noticed more darkened windows and empty stores in the mall, you are not alone.
According to Moody’s Analytics’ Commercial Real Estate Division, the vacancy rate for local shopping centers in the first quarter of 2021 reached a record 11.4% in the first quarter of 2021, compared to 10.5% in the fourth quarter of 2020.
The rise 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 depths of the Great Recession.
“Shopping malls are still on the line,” said Victor Calanog, leader of Moody’s commercial real estate division. “They were still in line before Covid … It’s almost fair to say now that we have a record vacancy rate for shopping malls because we’ve set the record all year.”
According to commercial real estate firm Green Street, the U.S. has about 1,000 shopping malls. Moody’s is monitoring about 700 of them for analysis.
Copper traffic to many closed shopping malls, often located in the suburbs, has declined steadily over the years, and Americans have spent more online. This pattern has only been accelerated by the global health crisis. Many of the retailers in malls, including department stores, have increasingly struggled to stay relevant with their customers. Last year, several shopping malls – including JC Penney, Neiman Marcus, Lord & Taylor, Brooks Brothers and J.Crew – applied for bankruptcy protection.
While other industry sectors such as multi-family apartment buildings are progressing better, retail is still the biggest pressure, Moody’s found in its latest quarterly report.
Industrial real estate was the most resilient type of property, with demand for warehouses storing goods and meeting e-commerce orders. Rental of warehouses and distribution properties across the country has so far not turned negative during the pandemic, Calanog said.
Office space, such as retail, continues to see higher vacancy rates and declining rents. Many businesses are still struggling with what the future of workspace will look like. Companies are considering erasing their footprints in the office and allowing employees to work from home at least part of the time.
Forty-eight of the 79 U.S. metro areas that follow Moody’s experienced effective office rental declines in the first quarter. Of the areas hardest hit, Charleston, South Carolina was 3.5% lower than a quarter. New York, 1.8% lower; and San Francisco, 1.6% lower.
In the retail sector, 40 of the 77 metros recorded a decline in effective rents during the first quarter, Moody’s found. Here, retail is only representative of shopping malls in the area and not indoors, the firm noted.
The vacancy rate for these retail properties (excluding shopping centers) was 10.6% during the most recent period, slightly rising from 10.5% in the fourth quarter.
“It’s a constant balance between the closure of the stores and the openings,” Calanog said of the retail industry. “We want to be honest, there are companies opening stores. … But now we’re losing space, and that’s what the data reflects.”
Growth in retail stores today has largely concentrated in the discount 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 are also still opening stores and expect a strong recovery after the pandemic in visits to brick stores.
But growth will not always be enough to compensate for decay elsewhere.
In a separate report released this week, UBS predicted in a baseline scenario that there would be about 80,000 stores nationwide in the next five years, affecting about 9% of all stores. Clothing, sporting goods stores and office supplies are expected to account for a large portion of the closures, UBS said.
It numbered 115,000 malls – a figure that includes slides, malls, stores and other lifestyle centers – by the end of 2020 in the US, compared to 112,000 in 2010 and 90,000 in 2000.
– CNBC’s Nate Rattner contributed to this data visualization.