Shopping-Center Owners Start Year With Optimism as 4th-Quarter Rents Rise

U.S. shopping-center owners are starting 2015 on an optimistic note thanks to a solid holiday season and rising rents throughout 2014.

Yet, given that retail vacancies remain near historically elevated levels, more bullish news for retail landlords likely will come at a glacial pace.

All in, last year was a good one for mall and strip-center owners. The average strip-center vacancy last year was 10.2%, the lowest annual percentage since 2008, according to new data from real-estate research firm Reis Inc. Average rents increased 2%, the largest increase since 2007, said Reis, which tracks the largest 77 markets.

At malls, the vacancy rate ticked up slightly to 8% in the fourth quarter from 7.9% in the third, due mostly to closures by Sears Holdings Corp.But vacancy remains down from the recent high of 9.4% set in the third quarter of 2011. Mall rental rates, meanwhile, rose for the 14th consecutive quarter, albeit by tiny measures in each case, to $40.66 per square foot per year, Reis said.

For a property type that has really struggled over the past few years, things are getting better, said Ryan Severino, senior economist at Reis. That portends improvement in 2015 and beyond.

Retailers and their landlords alike have sunny outlooks for several reasons. Holiday sales were strong. Thomson Reuters projects that the 76 retailers it tracks will post an average fourth-quarter gain in same-store sales of 1.8%, up from 0.7% for the final quarter of 2013.

Job growth has gained significant momentum in recent months, and wage growth is picking up, too. A potential windfall recently arrived for merchants in the steep decline of oil prices, which has freed shoppers to spend less on gas and more on retail goods.

If 2015 sees any material rise in income, and if energy prices remain where they are, you could see a real bump in spending in 2015, said Gene Spiegelman, vice chairman and head of retail services in North America for commercial brokerage Cushman & Wakefield.

OConnor Capital Partners LLC, a closely held builder and owner with 14 million square feet of shopping centers in the U.S. and Mexico, anticipates that its tenants will post an average sales gain of 2% to 2.5% for the fourth quarter from the year-earlier period. Thatd be as good a fourth quarter as weve had since 2011, OConnor Chairman and Chief Executive Glenn Rufrano said.

Mr. Rufrano said he noticed sales gains last quarter from OConnors tenants in athletics, accessories, electronics and home goods. But he said some apparel stores were struggling. Several flagship apparel chains have been reporting weak sales lately,including Abercrombie & Fitch Co. and American Apparel Inc.

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Shopping-Center Owners Start Year With Optimism as 4th-Quarter Rents Rise