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Study Says Power Centers Lead Shopping Center Sector

Market research firm Cassidy Turley tracked shopping center vacancy and rental rates in 60 major U.S. markets.

Power centers have emerged as one of the strongest types of property in the shopping center industry, according to market research firm Cassidy Turley, which tracked shopping center vacancy and rental rates in 60 major U.S. markets.

The company last week issued its National Retail Review for the first quarter of 2014. Research director Garrick Brown, who edited the report, said he was surprised by the power center performance. Despite the fact that big-box chains populate power centers and are actively looking to reduce their footprints and store counts, or both, power centers have become a solid format. This is because landlords have been willing to adapt to retailers’ changing needs, turning large, vacant boxes into smaller footprints and installing food courts in space left behind by contracting bookstores, office supply chains and electronics stores. For example, Barnes & Noble is planning to close at least one-third of its stores in the next few years. Cassidy Turley predicts that the bookseller could return as much as 9 million square feet.

Brown said that new power centers being built won’t fit the traditional mold. Many will be anchored by superstores such as Target, Wal-Mart or Meijer.

The Cassidy Turley study found that the overall shopping center vacancy rate was 8.5 percent, down from 8.6 percent last quarter and 9 percent a year ago. Over the last year, 40.8 million square feet of space was absorbed by the market and more than 16.9 million square feet of occupancy growth took place.

 

With power centers becoming more food-focused, they’re beginning to look more like strip centers/community/neighborhood centers. Strip centers finished the first quarter with a 9.9 percent vacancy rate, compared with a 10 percent vacancy rate the previous quarter. Strip/community/neighborhood centers are the largest sector of the shopping center industry that Cassidy Turley tracks. They account for more than 3.5 billion square feet of space, or 67 percent of the total 5.3 billion square feet it tracks.

Strip centers will post the strongest gains going forward because the traditional tenant mix of grocery or  drugstore anchors or restaurants have been the least impacted by e-commerce.

 

The vacancy rates for malls in the first quarter were 4.5 percent compared with 5 percent a year ago. Brown said malls faced challenges such as the missing middle class consumer and the threat of e-commerce. He cited casualties such as Coldwater Creek and Brookstone. J.C. Penney and Sears have been downsizing. In addition, Abercrombie & Fitch and Aéropostale are closing stores while Daffy’s and Dot’s liquidated.

While unemployment may be back to prerecession levels, Brown said that there have been more job gains in lower wage industries than higher wage. “We still have not regained over 1.9 million mid- and higher-wage positions,” he said.

Malls face a class issue. Those classified as “A” malls — the strongest — had a 2 percent vacancy rate, while “C” malls, which are older and sometimes obsolete, had a 10 percent rate. “B” malls are under pressure to upgrade and compete with A malls or be in danger of slipping into the C category.