Surprise, Surprise: Retail Rents Actually Grew In Q2

Effective retail rents grew by 0.1% in the second quarter, a sign experts from Moody’s Analytics say shows a “significant” lack of stress, considering typical trends in the sector. 

The uptick has “at least temporarily, moderated the glut of negative sentiments across analysts and industry stakeholders,” Moody’s Thomas LaSalvia notes in a new analysis of Q2 CRE data. The overall vacancy rate for retail in Q2 clocked in at 10.5%, while asking rents were $21.33 per square foot and effective rents came in at $18.59 per square foot.

Another surprisingly bright spot/? Regional and super regional malls, which showed vacancy increases of only 10 basis points during the quarter and asking rent increases of 0.2%.

“The current vacancy rate is still a record in our 20 years of tracking this property type, but the leveling off shows the positive impact of a reopening economy and a willingness and desire of consumers to once again embrace public spaces,” LaSalvia notes.

Similarly, retail performance was “benign” for most of the metro areas Moody’s tracks, with just 18 of 77 reporting a decline in effective rents. That’s 25 less than in Q1 and another 20 less than Q4 2020 numbers.  Of those metros, only Wichita showed effective rent declines of more than 1%, and 13 metros showed year-over-year rent growth in Q2, up from just one in Q1.

Retail rent collections are also up to pre-pandemic levels and hit 91% in May the first time since March 2020 that collections eclipsed the 90% mark. That’s up more than a percentage point over April figures, according to Datex Property Solutions.

And on the office front, 37 out of the 79 metros Moody’s tracks showed effective rent declines in Q2, led by Ventura County (-1.2%), Sacramento (-0.9%), and New York (-0.9%). Charlotte, Chattanooga, Omaha, and Minneapolis were the only cities that showed an increase in effective rent growth in excess of 1% for the quarter.  

Office vacancy came in at 18.5%, slightly higher than Q1’s 18.2%, and asking rents were $34.41 per square foot. Effective rents came in at $27.44 per square foot.

The lack of stress for the office and retail sectors are encouraging signs for commercial real estate, but it does not mean we are completely out of the woods, according to LaSalvia. “There remains great uncertainty regarding remote work, e-commerce, and regional migration that will place targeted negative pressures on the respective sectors. Risks will be less systematic and more localized moving forward. Investors and other stakeholders must aggressively pursue submarket and property level analytics to identify any potential pain points.”