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Though U.S. Shopping Center Absorption Plummets, Neighborhood Grocery-Anchored Centers Thrive

U.S. shopping center occupancy took a dive in the second quarter.

While vacancy held steady from the first quarter at 6.6%, net absorption was down 3.3M SF compared to the year-ago quarter. About 4.3M SF was soaked up in Q2, only half of its post-recession average, according to the latest Cushman & Wakefield report.


More concerning is the announcement of the liquidations of Bon-Ton and Toys R Us, both of which will saddle the market with hundreds of store vacancies starting in the third quarter. By then, Sears may have caused further disruption as its slide into insolvency shows no sign of slowing.

Cushman & Wakefield notes that while Class-A shopping centers and malls are having no trouble filling those vacated spaces with tenants willing to pay better rents, it only serves to widen the gap between high-end assets and Class-B and C centers, with many in the latter category likely to have a hard time staying afloat.

That said, grocery-anchored neighborhood centers have remained above water in the tumultuous retail environment, as have pharmacy-anchored centers and those filled with more service- and food-oriented tenants. 

Neighborhood and community centers accounted for the majority of Q2's absorption, with tenants absorbing a positive 3.7M SF during the quarter. Vacancy rates fell from 7.3% to 7.2% quarter to quarter.

These properties are benefiting from the rapid expansion of off-price grocers like Aldi and Lidl, as well as specialty providers Trader Joe's and Sprouts Farmers Market. Once Amazon is more settled into its ownership of Whole Foods, Cushman predicts it will proceed with an aggressive expansion plan of its own.

Pharmacies remain just as resistant to e-commerce as grocery stores, but their outlook isn't quite as rosy. Walgreens is closing Rite-Aid stores after its big buy, and Albertsons is on the way to doing the same. In the long term, Amazon lurks as the world waits to see the ultimate effects of its healthcare venture with Berkshire Hathaway and JPMorgan Chase.