Moody’s: Retail Vacancy Rate Unchanged in Q4

From Moody’s Analytics economists: Multifamily Continued to Defy the Supply Shock, Office’s Vacancy Rate Broke Another Record, Retail Rents Drift Higher with Tight Supply, And Industrial Maintains Status Quo

The retail vacancy rate remained stable at 10.3% in Q4, putting a pause to a one-time decline in the previous quarter. Both asking and effective rent enjoyed a slight increase of 0.3%, reaching $21.90 and $19.19/sqft respectively. This steady performance fit in with the backdrop of retail sales exceeding expectations again in the fourth quarter, with October and November witnessing 0.5% and 0.7% growth respectively. Although these gains were primarily driven by purchases of motor vehicles and online merchandise, this surge in consumer spending reflected the resilience of the labor market, robust household finances, accompanied by Federal Reserve interest rate cuts and a slowdown in inflation, which together bolstered consumer confidence.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). 

Moody’s reports the strip mall vacancy rates was 10.3% in Q4, down slightly from 10.4% in Q4 2023.

Back in the ’80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-’00s, mall investment picked up as mall builders followed the “roof tops” of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Recently the vacancy rate has held fairly steady at a high level as online shopping continues to impact brick and mortar stores.