Online retail sales keep climbing, big box retailers keep wondering what to do with all their space, and small stores struggle to survive at all. As a result of that nasty brew, Malls Face Surge in Vacancies.

Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.

The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990.

In the Denver suburb of Westminster, Colo., city officials are negotiating to buy and raze the 34-year-old Westminster Mall and redevelop it into offices, homes and stores. The 1.2-million-square-foot mall, once home to a Macy’s, Trail Dust Steak House and Mervyn’s, has seen its sales-tax generation plummet in recent years, to $1.5 million last year from $8.5 million in 2000, city officials say.

The mall went “from a place that was once vibrant to something that is now virtually vacant.”

Shopping Center Economic Model

In 2005, the mall-vacancy rate hit a low of 5.1%. For strip centers the boom-time low vacancy rate was 6.7% that same year.

On April 18, 2008 I wrote Shopping Center Economic Model Is History

Lease rates are going to sink, vacancies are going to soar, and the oncoming supply of mall space with no tenants is going to bankrupt many regional banks that funded such construction. The shopping center economic model will soon be history.

Bank Failures

Inquiring minds may be interested in a recap of Bank failures in the United States 2008–2011

2008: 25
2009: 140
2010: 157
2011: 26

Only So Many Shoppers

A couple weeks ago I was contacted by a reporter in Las Vegas about a new mall going up in the city. I told him the obvious: There are only so many shoppers.

What good can a new mall do? During construction it will provide a few jobs. Then what? Then instead of shopping at the old mall people start shopping at the new mall. No one buys any more stuff.

Shopping Center Dynamics

Ironically, is quite common for city councils to give huge tax breaks to new businesses that “create jobs”.

Mayors love ribbon-cutting events like mall openings. Then a few years down the road if not sooner, everyone wonders where the jobs are and why expected sales tax revenues did not materialize.

There is no need to wonder. The answer should be easy to spot in all the vacant strip-malls and closed stores elsewhere.

To be sure, there are some city revivals, but those come at the expense of shoppers staying local rather than driving to the nearest town . The reverse also happens. People travel to the new mall in the neighboring city rather than shop local.

This dynamic ensures that malls and strip-malls go up everywhere until there is a crash, which is precisely where we are now.

Online Sales Compound the Mall Problem

A few years back online sales were about 6% of total sales. Online sales hit 12% this past Christmas. State and local governments are more than a bit upset about the lost sales tax revenue.

Malls and big box retailers are upset too. Everyone hates Amazon, except Amazon customers.

Big box retailers have a glut of space and many are starting to shrink the number of items they carry. However, every item they do not carry that someone wants to buy, is another item someone will decide to buy online.

Yet, every online purchase is one less trip and fewer miles on the car. Thus online shopping also impacts gasoline sales, gasoline tax collection, and car maintenance.


The population is getting older. In advanced years, much of what people buy is health- or food-related, not gadget-related or travel-related.

A certain set of people never became comfortable with the internet and internet shopping. Younger generations have no aversion to buying online or not buying at all.

Those fresh out of college are deep in debt and struggle to pay that debt off.

As boomers head into retirement many are scared half to death about insufficient savings. Their peak shopping years are now well behind them.

One bright spot lately has been a revival in luxury items. However, that has largely been a result of the stock market revival. Should there be a sustained relapse in the stock market, luxury sales will take another dive as well.

In light of the above, I see no sustainable revival in the shopping center economic model for years to come.

Mike “Mish” Shedlock
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