US Regional Mall Vacancies Rose in Fourth Quarter: Reis

Vacancy rates at U.S. regional malls rose and rents fell during the fourth quarter due to concerns about consumer spending and a potential slowdown in the national economy, real estate research firm Reis said.

A slowdown in both the growth of consumer spending and the hesitancy of retailers to sign leases in such uncertain times have contributed to a "change in trajectory" for regional malls, Reis chief economist Sam Chandran said.

"It's only one quarter, so we don't want to go too far, but the numbers are significant enough that we are starting to see that deterioration," Chandran said.

Vacancy rates at regional malls rose 0.3 percentage point to 5.8 percent and asking rent fell 0.4 percent to $40.37 per square foot in the fourth quarter from the third quarter.

Regional malls typically have anchor tenants such as department stores and other retail chains that sell largely discretionary items that had seen strong consumer spending growth in recent years during the housing boom.

Those sources of consumer cash, such as refinancings and home equity loans have dried up in the housing downturn.

"We clearly see consumers are spooked and that is going to give them some pause when they are at the mall," Chandran said.

"We will see further stress on the performance of the regional malls as we move further into 2008."

Shopping center owners got another splash of cold water after U.S. retailers reported Thursday that they slogged through the worst holiday shopping season in five years.

Two-thirds of retailers reported December same-store sales that missed expectations that often already had been lowered.

Several retailers have pared expansion plans or expect to close stores including Macy's and Talbots .

Regional malls had been a savior of sorts as vacancies rose at U.S. neighborhood shopping centers in recent quarters. The rate rose another 0.2 percentage point in the fourth quarter to 7.5 percent, the highest in a decade.

The U.S. home boom pushed new community development far a field and spurring demand for neighborhood shopping centers for staples such as groceries. However, many neighborhoods lack residents in force, leaving newly developed areas with the weakest leasing environment for shopping centers, Reis said.

Effective rent -- the amount paid net of free months and tenant improvements -- grew 0.4 percent to $17.61 per square foot among the neighborhood shopping centers, about flat when adjusted for inflation.

Vacancy rates in some markets severely hurt by the housing slowdown rose, such as Fort Lauderdale, Florida, where the rate rose 0.9 percentage point to 7 percent.

At 2.5 percent, Orange County, California, had the lowest vacancy rate in 76 U.S. markets that Reis tracks. Suburban Virginia had a 2.6 percent rate, while San Jose and Los Angeles had 2.7 percent and 2.8 percent rates, respectively.