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FEATURES Chart 1-2 U.S. Shopping Centers With 40% or More Vacancy


currently 273 bps). Significantly, the gap was increasing even during the frothy years of the expansion (2006-08), suggesting that even before the recession hit, the other two forces of excessive supply and technological advancements were separating the winners from the losers. The recession only accelerated those forces, and the performance gap has endured during the early stages of the recovery. This trend helps to explain why these failed centers have not and will not come back—that oversupply and technology have forced an unprecedented retrenchment in the retail sector. The result will be structurally lower inventory per capita, reversing a 30- year upward trend.


Differences by Center Type Often unanchored, open-air centers have been hard hit


Sources: CoStar, PPR, Deutsche Asset & Wealth Management


calculations of competitive vacancies reveals a far more sanguine picture in which the vacancy rate drops to 6.3% from 9.0%. (See Chart 1-3). Similarly, the total increase experienced during the


recession shrinks to less than 175 basis points (bps), compared to over 260 bps for the broader inventory. The gap between these two measures of vacancy has doubled since 2006, climbing from about 140 bps to 280 bps (it is


over the past six years, as over 8% of centers have “failed.” This is not surprising when the “mom-and-pop” tenancy of these centers is considered. Lacking national credit tenants who could better weather the contraction, local tenants often relied on home equity lines as a source of working capital for their retail business. These lines were too often pulled by nervous banks eyeing evaporating equity, and these retailers were quickly forced out of business. With home equity lines only now (seven years on) starting to grow again, few new “mom- and-pop” retailers have emerged to take these shuttered locations.


Chart 1-3 Total and Adjusted Vacancy Rates, U.S. Shopping Centers, 2006-2012


Sources: CoStar, PPR, Deutsche Asset & Wealth Management INTERNATIONAL COUNCIL OF SHOPPING CENTERS 3 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 2, 2013


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