Tuesday, May 09, 2006

Mall Wars

Strip malls and shopping malls showed the sort of divergence in Q4 2005 that is generally associated with a faltering economy. Vacancies went up a bit for both (more for shopping malls), but rent was up substantially for strip malls while remaining effectively flat for shopping malls. Why? Strip malls are inhabited by discounters and bread-and-butter retailers; shopping malls are inhabited by nonessentials. As an economy slips, demand for shopping mall products slips, whereas strip mall products are less discretionary. Add in the number of anchors that are going dark, and you have a lot of shopping mall retailers who 1) can't afford an increase and 2) have less revenue and so are paying less under the percentage clauses of their leases.

So why did strip mall vacancies go up? Because we're building more of them, a lot more. The demand is going great guns, though, and absorbing the new space. Big Lots is becoming a popular place.


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