As retailers slug it out for market share and the attention of distracted consumers, landlords are taking full advantage of the limited amount of space in A and B malls.

This story first appeared in the November 26, 2013 issue of WWD. Subscribe Today.

“The vacancy rates have really narrowed,” said Andrew Graiser, copresident of A&G Realty Partners, a real estate advisory firm. “You’re in a world right now where there’s little to no growth in new developments outside of outlets. There are a lot of retailers that are growing, they have no place to grow, so therefore there’s a lot more demand for A- and B-quality retail. The rents are going up.”

All of that is good news for the real estate investment trusts.

“It’s clearly their time,” Graiser said. “Where four or five years ago the retailers had a lot of leverage in the A and B malls, that has definitely swung to the landlords.”

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Graiser noted that REITs are focused on improving their best real estate, and in some cases are selling off their C and D malls to smaller players or private companies that can dig in and reinvent the spaces.

General Growth Properties Inc., for one, is laser-focused on the high end of its portfolio.

Sandeep Mathrani, chief executive officer, recently told Wall Street analysts, “We firmly believe that good things happen to good assets, and over the long term, the most opportunity and highest value creation opportunity will be within the high-quality end of the property spectrum. Our mission is to own and operate high-quality retail assets in the U.S.”

Of General Growth’s 123 malls, 73 are considered A malls, and they account for three-quarters of the company’s net operating income and see sales of more than $650 a square foot. Overall, the company saw a permanent occupancy rate of 90.1 percent at the end of the third quarter.

And the net operating incomes at malls don’t necessarily move in lockstep with the retail market as a whole.

“We see almost no or very little correlation between tenant sales growth and our NOI growth,” said David Simon, chairman and ceo of Simon Property Group Inc., on a call with investors. “Due to our ability to replace underperforming retailers, we have good visibility for strong NOI growth over the near term.”

Simon’s comparable property net operating income in its U.S. malls and premium outlets rose 4.9 percent in the third quarter. And the firm’s occupancy rate stood at 95.5 percent with total sales per square foot of $579.

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