Shopping mall vacancies rise, apartment market healthy

Retail centers are being especially hard-hit by the economic slowdown as consumers reign in their spending and sentiment plummets. Apartments, however, are performing well as people either decide to rent or have no choice due to the tight credit market. From the Wall Street Journal:

Malls are seeing their highest vacancy rate since 2001, according to data released by real-estate-research firm Reis Inc. For shopping centers, the rate is the highest since 1994.

In contrast, the apartment market remained one of the most healthy real-estate markets in the third quarter, benefiting from the struggling home-sales market. Many would-be buyers, unable to get mortgages or worried about the darkening economy, are renting apartments instead.

In the top 79 U.S. markets, apartments posted a slight increase in the vacancy rate to 6.1%, up from 6% from the previous quarter, and a rise in rents of roughly half a percentage point, according to Reis...

In the retail sector, vacancy rates have climbed and rent increases have slowed for the past year. The vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, to its highest level since late 2001, according to Reis.

For strip centers and other open-air shopping venues, the vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, according to Reis. Meanwhile, retailers' closures outpaced new leases by 2.8 million square feet in U.S. strip centers in the third quarter, the third consecutive quarterly net decline. It is the first nine-month period of so-called negative net absorption since Reis started tracking the data in 1980.

The combined vacancy rate for malls and strip centers in the third quarter was 8%, up from 7.8% in the second quarter. Vacancy tends to be higher in strip centers during economic slowdowns because they have more independent, local tenants, which are more vulnerable to drops in sales than are the national retailers found in malls.

Still, the economic slump has taken its toll on national retailers. Among those that have closed stores in recent months are Starbucks Corp., Dillard's Inc. and Linens 'n Things Inc. More closures likely are on tap, as retailers such as Circuit City Stores Inc. struggle with dwindling sales...

Retail landlords are hurt directly by slumping sales because many of them have leases that, in addition to base rent, give them a small portion of payments based on the tenant's sales growth. And retailers feeling the pinch from the shopping slowdown increasingly are asking for rent concessions...

Analysts report strong apartment occupancy and rent growth in markets including San Francisco, Boston, San Diego and the Pacific Northwest. Rents and occupancy have suffered in boom-bust markets such as Phoenix and Orlando, Fla. But some previously strong apartment markets, namely New York and Charlotte, N.C., might suffer from the loss of financial jobs amid the banking shakeout.