Department Stores Celebrate Wins While Mall REITs Continue To Slump

mall, shopping center, shoppers

Concerns about rising interest rates have mall REITs on edge.

The FTSE Nareit Equity REIT Index slumped 2.3% Tuesday but the FTSE Nareit Equity Regional Malls Index dipped even lower, 3.5%. REITs have historically performed better when interest rates are low, which is why a potential jump in rates could be viewed as a threat, the Wall Street Journal reports.

Higher interest rates could also impact rent and capital expenditures, which could make it more difficult to attract retail tenants, many of which are already downsizing in an effort to cut costs. To account for shifts resulting from a rise in e-commerce, mall owners may be forced to lower rent to ensure spaces are filled.

But while mall REITs continue to struggle, department stores Macy's and Dillard's posted healthy fourth-quarter results Wednesday. Mall REITs typically trade alongside the retail sector with shares rising when it is performing well, but that has not happened in this case.

In November, The Green Street Commercial Property Price Index — which tracks the pricing of properties owned by REITs — marked the sharpest index decline — to 125.5 — since the financial crisis. Part of this sharp drop was attributed to the fact that asset sales were not taking place despite slumping mall REIT shares.

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