Retail Vacancies and Rents Rise, Pointing to Market Slowdown

Article By Ryan Chittum Via the Wall Street Journal

The U.S. retail real-estate market showed signs of slowing in the third quarter as vacancies moved higher but it wasn't enough to damp rents, according to a new study.

The higher vacancies are likely to reinforce investor concerns that weaker consumer spending means retail real estate has peaked.

Shopping-mall rents rose 0.9% in the third quarter -- the fastest pace in two years -- to $38.08 per square foot per year from $37.75 in the second quarter, according to the survey of the top 67 U.S. markets, excluding New Orleans, by Reis Inc., a New York-based commercial real-estate research firm. The vacancy rate moved to 5.4%, up from 5.1% in the previous quarter.Rents at strip malls were up 1% to $18.23 a square foot in the third quarter from $18.05 in the second quarter. The vacancy rate edged up to 6.8% from 6.7% in the second quarter as absorption -- the net change in occupied space -- slowed from its high second-quarter pace. Tenants absorbed 6.8 million square feet in the quarter, down from 9 million square feet in the second quarter.

In a potential sign of trouble in retail, 16 of the 67 markets surveyed had net decreases in occupied space at strip malls during the quarter as consumers appeared to pull back on spending, said Lloyd Lynford, chief executive of Reis. The total decrease in occupied space among the down markets was about twice the total decrease among down markets in the second quarter.

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