Retail Vacancies Down, Rents Up … Why More and Better Work is on the Way

It’s not going to happen overnight but pavement maintenance contractors and parking lot sweeping contractors should be seeing an uptick in work available, job size – even profit margins. For sweepers that hopefully means increased sweeps, too.

That’s because retail vacancy rates and rents – the driving forces behind capital available for property maintenance – are well into an almost three-year stretch of each moving in the right direction, beginning to reverse the damage done during The Great Recession.

When vacancy rates are up, rents are down and with empty storefronts there are fewer tenants to contribute to the property maintenance kitty. Property managers have less money to do what they need to so work gets delayed, job size gets smaller, and suddenly there’s a way in for the lowest-bid contractor, which ultimately drives down margins.

That’s what contractors have been dealing with for years, but for a while now the retail situation has been improving. Vacancy rates are declining which means rents can be raised. If you aren’t seeing it yet hopefully your salespeople will start seeing it soon.

The Wall Street Journal reports that, according to Reis Inc., which collects data from 77 markets, vacancy rates at strip centers declined to 10.3% in the second quarter, down 0.10% from the first quarter and is now almost one percentage point lower than the 2011 post-recession high. Vacancy at malls was 7.9% for the third consecutive quarter, down from a high of 9.4% in late 2011.

The Journal reports that as a result of the declining vacancy rates, landlords were able to raise rents at malls for the 13th consecutive quarter and at strip malls for the 11th consecutive quarter. Rents at malls rose 0.4% in the second quarter to $40.32 per squarer foot per year; rents at strip centers rose 0.5% to $19.51.

“This is the continuation of a slow, but decidedly upward trend in quarterly rent growth over the last few years,” said Ryan Severino, senior economist at Reis.

Clearly that means more tenants paying higher rents, which means more money for property managers to work with. And according to real estate research organization the CoStar Group, vacancy rates are unlikely to increase soon as retail construction remains slow. The CoStar Group estimates that builders will complete construction of 45. 2 million square feet of retail space and another 71.5 million square feet next year (63 markets studied) – way down from 210 million square feet in 2007.

“We don’t see the new-supply dynamic changing anytime soon,” said Shane Garrison, COO and CIO of Retail Properties of American Inc., which owns about 230 properties in more than 70 U.S. markets. “So it’s definitely a landlord’s market again.”

And hopefully a contractor’s market too.