Occupancy and rents are up at shopping centers

Good news from Reis, Inc., a research company that tracks shopping centers.

• In the three months ending June 30, occupied space rose by a net 2.06 million square feet, the third largest addition since the first quarter of 2008.
• Shopping center vacancies dropped for a second consecutive quarter. Vacancies are now at 10.8%, down from 10.9% in the previous quarter.
• Effective rents averaged $16.55 per square foot, up from $16.49 a year ago.
• The Bloomberg shopping center REIT index has risen 20% so far in this calendar year, making it the second best performing group of real estate investment trusts, trailing only the Bloomberg mall REIT index, which gained 22%.

Retail sales and vacancy rates at odds in recent reports, but wait...

Sales: According to Thomson Reuters data on 25 major chains, retail sales in the U.S. increased 1.7% in March, despite a late Easter, high unemployment and rising gasoline prices. Analysts had expected that sales would fall 0.7%. And according to a story in The Wall Street Journal, U.S. retailers expect solid spring sales, despite gas prices, inflation and lackluster consumer confidence. Global consumer strategist Don Palmer says many retailers are actually raising prices more than they have to in order to test their pricing power with customers.

But wait... Mr. Palmer points out there is risk in this pricing strategy, as resistance to rising prices will be delayed and hit later, possibly during the critical back-to-school or holiday sales season.

Vacancy rates: According to Reis, vacancies at neighborhood and community shopping centers, which are usually anchored by discount and grocery stores, rose to 10.9% in the first quarter from 10.7% a year earlier. The rate was unchanged from the three previous quarters and the highest since it reached 11% in 1991. The vacancy rate for regional malls hit 9.1%, also the highest rate since 1991.


But wait... CoStar Group said the vacancy rate for all types of U.S. retail properties (including freestanding stores, malls, strip malls and community shopping centers) fell to 7.1% in the first quarter from 7.4% a year earlier. Furthermore, retail properties overall have had net occupancy gains for seven quarters. More consumer spending and corporate hiring has helped, according to one of CoStar's senior real estate strategists.

There you have it.