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Vacancy Rate In Local Malls Increases From 3% To 5%

Local leasing execs still optimistic; strip malls and smaller enclosed shopping centers faring well against their stateside counterparts


Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.February 19, 2004

Puerto Rico malls have long been known to enjoy higher occupancy rates than stateside malls, but the gap seems to be closing. Nevertheless, local leasing executives are upbeat.

In 1998, enclosed shopping centers on the island had an average vacancy rate of 3%, according to economist Heidie Calero. Today, this figure is closer to 5%, said James De Winter, director of retail services for Latin America and the Caribbean at commercial real-estate firm CB Richard Ellis. De Winter said the slight increase in the vacancy rate could be reversed given that no new large malls are being built in Puerto Rico, and there is more competition entering the local market.

Another source said top-notch malls in the States (known as "A" malls) have overall vacancy rates that are equal to or lower than those in Puerto Rico, meaning they are fuller. However, local strip centers and smaller enclosed malls (known as "B," "C," or "D" malls) are still enjoying higher occupancy rates than their stateside counterparts.

One possible reason for the lower occupancy at local "A" malls is that although more players are seeking retail space on the island, they aren’t expanding as aggressively as they were in the late 1990s, said De Winter.

As of March 1, 2003, the overall vacancy rate for enclosed malls in the States was 3.4%. The vacancy rates for mall stores and food-court vendors were 8.4% and 4%, respectively, according to the International Council of Shopping Centers (ICSC). The organization’s research also indicates that overall vacancy rates were higher for stateside malls occupying less than 500,000 square feet.

The opposite is true in Puerto Rico. Marietta Don Segarra, vice president of Centro Gran Caribe in Vega Alta, said the 400,000-square-foot mall has a low rate of tenant turnover. She attributes this to the long-term contracts with the mall; most tenants have contracts averaging 10 years.

"Strip centers in Puerto Rico also have a low vacancy rate," De Winter told CARIBBEAN BUSINESS. That may be in part because they charge lower rents.

"It has become very expensive to operate in [the large] enclosed shopping centers," said Ilsa Vidal, leasing director for Commercial Properties Development Corp. "Just look at the expenses tenants must incur besides rent. These extra expenses [such as for upkeep of common areas and insurance] generally fluctuate between $3 and $5 per square foot at strip malls, but I have heard of large enclosed malls charging between $10 and $30."

This Caribbean Business article appears courtesy of Casiano Communications.
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