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Malls lose tenants despite retail uptick

Jeff Tyler Apr 7, 2011

Malls lose tenants despite retail uptick

Jeff Tyler Apr 7, 2011

Bob Moon: If you’ve been shopping around for signs of an economic recovery, you’re probably going to find something else — vacancy signs at your local mall. A new report out today shows that, in the first quarter of this year, vacancy rates at shopping centers hit an 11-year high.

This “mall malaise” came as a bit of a surprise to analysts, as Marketplace’s Jeff Tyler reports.

Jeff Tyler: The evidence had been pointing to a recovery at the shopping mall. Retail sales seemed to be picking up, and more businesses were signing leases.

Victor Calanog: It was a bit of a surprise because vacancies were trending downward at the latter half of 2010.

That’s Victor Calanog with the commercial real estate research firm, Reis. Its new research shows vacancies are up at U.S. malls. Why are malls hurting so much? Obviously, the recession plays a part. Also, developers overbuilt during the construction boom. And Calanog says some major players are reconsidering their need for lots of space.

Calanog: Even if, for example, Best Buy might be doing well, it really looks like they are reassessing their need for, say, 20,000- to 30,000-square-foot stores. They’re looking at anywhere from 1,500 square feet or less.

Of course, the Internet is also to blame, siphoning off some brick-and-mortar shoppers. But some kinds of stores are less vulnerable to Internet poachers.

Malachy Kavanagh: People still need to feel, touch, try on apparel.

Malachy Kavanagh is spokesman for the International Council of Shopping Centers. He says property owners are reaching out to retailers abroad.

Kavanagh: To try to bring into the States some fashion retailers from Europe. They’re also looking into Asia.

He says some malls are offering free rent for new retailers. Victor Calanog with Reis says mall owners are also experimenting with non-traditional tenants.

Calanog: For example, we’ve seen churches. We’ve seen schools. We’ve seen medical facilities actually offer standard MRIs and so on and so forth in shopping centers.

That may be innovative. But Calanog wonders about the long-term viability of these unconventional tenants. Otherwise, he expects malls will lose more retailers before things turn around next year.

I’m Jeff Tyler for Marketplace.

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