Mall Vacancies At Dot-Com Crash Levels

Check out just how badly commercial real estate is faring in this so-called recovery:

Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.

I guess all of those job seekers who’ve left the workforce (according to the government’s figures citing an “improving” job picture) shouldn’t waste time sending resumes to mini-mall owners.  The U.S. hasn’t seen vacancy rates like those since the dot-com recession of 2000-2002 or so.  Developers built too many mini-malls in unsustainable exurban areas that will someday be farmland again.

This kind of market is terrific for investors seeking bargain properties but horrible for mortgage note investors.  Note holders will be left holding the bag if mall owners default.  PIMCO doesn’t agree and intends to launch a REIT focused on CMBS. That may be the wrong move in this environment.  Instead of throwing my money at PIMCO, I’d rather watch the foreclosure listings in my area to see if any desirable properties are coming up for auction.

Nota bene:  No positions in real estate or PIMCO products at this time.

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

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1 Comment on Mall Vacancies At Dot-Com Crash Levels

  1. Hello,

    My name is Chris Macke and I am Senior Real Estate Strategist at the CoStar Group. Our data reflects a very different picture regarding malls.

    The difference is likely due to the fact that with more than 900 researchers we use a census method versus Reis sampling method. I don’t know how many researchers Reis has.

    We documented that mall vacancy rates have actually been decreasing now for three consecutive quarters and that asking rental rates actually increased in the first quarter. This makes sense as malls haven’t been impacted by the Borders, Linens or Circuit City bankruptcies nearly to the degree that non-mall retail centers have been. Additionally, mall development from 2000 to 2009 was less than half of what it was in the 1970’s while non-mall retail development acclerated. So non-mall retail is where the supplyl problem was, not malls.

    Again, why such a different view from Reis’ data? Reis samples the mall inventory while we use a census method which means we don’t have to estimate or extrapolate the results of a portion of the market to estimate how the larger market is performing.

    It is also important to look at how many malls Reis covers in their data-set as well. If they are using a smaller dataset while with more than 900 researchers we endeavor to track the entire pool of malls that also would impact the data and resulting view of the market.

    Lastly, if Reis lumps Lifestyle Centers in with its malls that would provide a more negative view of “malls” as it is the lifestyle centers that have suffered the most as they were the ones that were aggressively developed during the last cycle.

    I hope this helps your readership understand that there are differences in how the data is collected i.e. census versus sampling, to evaluate the resources each firm has available to collect the data and as a result that the datasets that the performance reflects could be significantly different.

    Sincerely,

    Chris Macke

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