An Austin example
My favorite destination in Austin is The Domain, a live-work-play outdoor mall with condos, retail and restaurants. It is high end in the first phase featuring a Tiffany’s, a Louis Vuitton, a Neiman Marcus and so on and so forth. The second phase is traditional mall fare with Aeropostale and Subway.
Strolling through The Domain nearby our house, we have become disenchanted. The Borders anchor on the south end is obviously closing. The chic decor store is closed, the yoga clothing store is gone, the glass art store is no more, Martin+Osa went out of business, Joe DiMaggio’s restaurant “closed to focus on other locations,” and the Whole Foods originally slated to open in 2012 was halted at the ground breaking stage two years ago leaving piles of rocky dirt on the road side. But at least the Macy’s isn’t one of the targeted closings, there’s always that.
Mall vacancies hit a 10 year high
Since Reis.com began recording mall vacancy rates in 2000, the rate has dropped to its lowest point yet in the first quarter of this year, sitting at barely over 9%. Retail sales have risen, rents are declining, yet vacancy rates remain high, most likely because of the time lag it takes to negotiate a large national lease.
What now for malls?
Our favorite mall will rebound, we know it will, and we are loyal, but there is a virus on what people perceive to be a dying mall that makes people feel a negative energy as if they’re going somewhere that is undesirable, so they seek alternatives. Residential real estate is impacted when people believe an area is on the decline and closing stores is what people feel is a symptom of an area that is undesirable, so they move elsewhere. It’s a vicious cycle.
Creative rent scenarios will likely pop up, but with rents lowering and vacancy rates rising, landlords will simply have to buckle up for the ride because Border’s isn’t the last company we’ll see this year close its doors.