Small mall vacancies hit 13-year high, firm reports

Retail sales and demand for shopping center space are being hurt by rising unemployment, increasing food and gasoline costs, and declining home values. (Eric Risberg/Associated Press/File 2008)

NEW YORK - Vacancies at US neighborhood and community shopping centers rose in the second quarter to a 13-year high, while vacancies at larger, regional malls were at their highest level since 2002, research firm Reis Inc. said.

The average vacancy rate at neighborhood and community malls rose to 8.2 percent, up from 7.3 percent a year earlier and the highest level since 1995, the New York real estate researcher said. At regional and super-regional malls, vacancies increased to 6.3 percent, up from 5.6 percent a year earlier and the highest since the first quarter of 2002, Reis said.

Retail sales and demand for shopping center space are being hurt by rising unemployment, increasing food and gasoline costs, and declining home values. US employers cut jobs in June for a sixth straight month, and the jobless rate remained at 5.5 percent after jumping in May by the most in two decades, the Labor Department said last week.

The amount of retail space being abandoned, "consistent with store closures, is at its highest level in almost 28 years," or as long as Reis has been collecting data, Sam Chandan, the firm's chief economist, said in an e-mail message.

Retailers Linens 'n Things Inc., Sharper Image Corp., Lillian Vernon Corp., Bombay Co., and Levitz Furniture Inc. have all filed for bankruptcy protection as credit has become harder to obtain and consumers have cut back on purchases.

Asking rent growth at neighborhood and community shopping centers dropped to 0.4 percent in the second quarter from 0.5 percent in the first quarter and 0.8 percent a year earlier, Reis said.

"It's certainly slowed down, but it's not real scary here," said Robert McGuinness, property manager of Midway Shopping Center in Scarsdale, N.Y., which has Linens 'n Things as its anchor tenant and another space that's been vacant since 2005. That vacancy has led potential tenants to seek rent discounts, he said.

"People come here looking for a bargain," McGuinness said yesterday in an interview with Bloomberg Television at the shopping center, where a large banner, emblazoned "Store Closing," hung above the entrance to Linens 'n Things. "They say, you know, space has been vacant for so many years now. We want this, we want that."

Neighborhood shopping centers typically have 30,000 to 150,000 square feet of retail space and are anchored by a supermarket, according to the International Council of Shopping Centers. Community centers usually have 100,000 to 350,000 square feet of space, are open air, and are anchored by two or more discount department, drug, grocery, or home improvement stores.

Reis tracks data for about 1.97 billion square feet of neighborhood and community shopping center space across the United States.

At regional and super-regional malls, the growth in rents was 0.2 percent in the second quarter, down from 0.4 percent in the first quarter and 0.9 percent a year earlier, Reis said.