This post originally appeared on tBL member Michael Bull's Bull Realty Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.


Geoffrey the Giraffe may have had a bigger impact on the retail sector than expected. With Toys “R” Us closing stores nationwide, the quarterly numbers were down. In fact, Q2 2018 saw a record-breaking 3.8 million SF of negative net absorption. This quarter’s numbers were so far off from the steadiness of the retail recovery that it can safely be called a blip on the radar.

In Q2 2018, the national vacancy rate for neighborhood and community shopping centers increased 20 basis points to 10.2%. The mall vacancy rate also increased 20 basis points to 8.6%, according to REIS’ Q2 2018 Preliminary Retail Trends report.

Somewhat surprisingly, rent growth has remained positive despite the increase in vacancy. Nationally, for neighborhood and community centers, both asking and effective rents increased 0.2% in the first quarter to $21.01 and $18.39/SF. This is a 1.7% and 1.8% increase year-over-year, respectively. Mall rents increased 0.3% in the quarter and 1.6% year-over-year.

New construction in the quarter totaled 780,000 SF, which “was welcome news in a tough retail climate that has suffered from numerous store closings across the U.S.,” reported REIS. Besides Toys “R” Us, other store closings in the quarter were Winn-Dixie with eight stores, Kmart with seven stores and Harvey with five stores.

However, the list of current and future store openings is longer than the list of closings. “Ross Stores Inc. opened 30 stores in June and July as part of the company’s push to add about 100 new outlets this year,” reported CoStar. “Low-cost supermarket chain Aldi plans to open 200 stores this year. Walmart and Gap both plan 90 new outlets, and Five Below, a Philadelphia-based discount chain offering items for less than $5, said it would open 125 stores, according to Coresight Research,” reported CoStar. REIS also mentioned “a few gyms and trampoline parks opened in some metros along with TJ Maxx, Target, Gabe’s and Bob Mills” in Q2 2018.

The U.S. economy added 213,000  jobs in June 2018 and the unemployment rate rose to 4.0%, down 30 basis year over year according to the U.S. Bureau of Labor Statistics (BLS). The most recent estimates from the U.S. Census Bureau indicate retail sales in June 2018 were $506.8 billion, a 6.6% increase from June 2017.

 “The retail statistics somewhat mirror the retail employment numbers,” reported REIS. “The U.S. retail sector has seen positive job growth every month in 2018 and has added 125,100 jobs over the last 12 months. Only 24,100 of these jobs were in e-commerce, and another 30,600 of the 125,100 retail jobs were in automobile or gasoline retail stations. Thus, the retail industries using traditional retail space are still showing net gains in employment. Moreover, restaurants have added 216,200 jobs (1.8%) over the last year.”

“Cap rates for shopping centers were unchanged from a year earlier in Q2’18 at 7.0%. For shops, though, there was a slight 10 bps increase with cap rates averaging 6.0% in Q2’18. The cap rates for shops are also lower than those for shopping centers relative to the historic trends in each segment of the market. Cap rates for shops are now 90 bps lower than the long-run trend while shopping centers are only 60 bps lower than the longterm trend,” reported Real Capital Analytics.

REIS predicts vacancy and rents will stay flat and that the majority of the negative net absorption is in the past.


In Atlanta, vacancy for neighborhood and community shopping centers increased 10 basis points to 11.6%, (a 30-basis point increase year over year). Annual asking and effective rent growth was 1.9% and 2.0% respectively. The metro saw effective rent growth of 0.6% in the quarter to an average effective rent of $16.56, reported REIS.

Jonathan DiGiovanni

“Demand for retail in Atlanta continues to be strong, as several fundamental drivers remain elevated. Job creation has outpaced the national average since 2012 and Atlanta has added the fourth most households out of any metro in the country during the last five years,” reported CoStar. “Moreover, a light delivery pipeline (relative to the historical average) has kept supply-side pressures low, allowing retail fundamentals to improve steadily over the cycle.”

“The good real estate vacated by Toys ‘R’ Us will be absorbed quickly and in Atlanta, strong market fundamentals coupled with the fact that we have had limited new retail product delivered during this cycle will help keep vacancy stable and rents strong,” said Jonathan DiGiovanni, V.P. of the National Retail Group with Bull Realty.

CoStar speculates that Atlanta retail is – and will continue to be – in a better position than the country as a whole. Toys “R” Us may be gone but retail lives on.

Bull Realty Research, Inc.

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