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Mall, Shopping Center Vacancies Pave Rocky Path for Retail Sector

Despite the holiday season, December was not welcoming to the retail sector as overall service sector sales plummeted to the lowest mark of the year, according to NACM Economist Chris Kuehl's findings in last month's Credit Managers' Index (CMI). An underlying trend remains unknown, but a recent CNBC report indicates the latest retail pitfalls could hurt malls and shopping centers in 2019.

On Jan. 3, CNBC published an article about the "wave of closures" that struck malls and shopping centers around the country in 2018. Regional and super regional mall vacancy rates reached 9% in the fourth quarter. These same rates experienced a minimal decline over the prior quarter; however, they were up 0.6% compared to 2017's four quarter results. Real estate research firm Reis told CNBC overall retail vacancies in the U.S. exceeded 10% in the fourth quarter but are expected to "hold steady" in 2019.

"Given the many store closures across the U.S., the minimal changes in vacancy rates show how the retail sector has withstood the structural changes in the industry," Reis Senior Economist Barbara Denham said in the report. "Many feared that vacancy rates would soar and rents would plummet. This did not occur as the doomsday prognostications proved to be overblown."

Although minimal rent increases are anticipated in the coming year, real estate research group CoStar told CNBC more retailers, big and small, are expected to close. This was reiterated by many U.S. companies' plans to close more than 145 million square feet of retail space in 2018, including Gap and Victoria's Secret as well as Sears, which filed for bankruptcy last October.

—Andrew Michaels, editorial associate

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Tuesday, 18 June 2019