- Summary: Strip-mall rents rose 0.9% sequentially in Q2 to $18.65 a square foot, and shopping-mall rents rose 1% to $38.89 a square foot, the biggest quarterly rise in nearly three years. However, the absorption of new space by tenants was only 4.9 million square feet. While up from 3.3 million in Q1, that's significantly lower than the two year average of about 7 million square feet per quarter. Moreover, 10.8 million square feet of strip mall space is due to come on the market in Q4. Lloyd Lynford, CEO of Reis, says "New construction this year particularly is back-loaded to the end of the year... investors would do well to be monitoring impact of that construction".
- Comment on related stocks/ETFs: Commercial and apartment REITs (real estate investment trusts) have solidly outperformed the housing-related stocks so far, but despite strong fundamentals currently, it's not clear whether that can continue because commercial and residential property are ultimately driven by the same underlying forces: jobs growth, interest rates and the financial health of the US consumer. REIT values have been supported by acquisitions, and valuations are expensive. Consolidation in the mall REIT space has included Centro Watt's acquisition of Heritage Properties and Kimco's acquisition of Pan Pacific. But the implication of the data in the WSJ article is that mall REITs -- and perhaps REITs in general -- may be topping out. Two ways to play that: short the REIT ETFs, such as the streetTRACKS REIT Index Fund ETF (RWR), or short Kimco (KIM), the largest mall REIT. Remember, though, that if you have to pay dividends on short positions.
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