RETAIL VACANCY IS AT 15YR LOW… THAT’S GOOD FOR MOBS

Shopping Centers are full of businesses again.

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The retail vacancy rate has fallen to 5.7%, which is the lowest it’s been since 2007 (according to Cushman & Wakefield).

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This is a strong bounceback for retail occupancy given how bad things got during the COVID lockdowns.

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Retail and Medical Office Buildings (MOBs) are different asset classes… and their financial performance doesn’t always correlate.

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But in this case, the key driver matters for both asset classes.

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That’s because the biggest driver is a lack of new construction. New development is down considerably across commercial real estate… for both retail and MOBs… as well as other real estate asset classes.

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It’s Economics 101. Supply and Demand. Fewer new properties means less options for tenants, and more bargaining power for landlords.

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And when landlords have more bargaining power they can use the leverage for better contractual terms.

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This is especially the case for MOBs, where vacancy rates were already very low… unlike in retail where there was often a more plausible scenario of a tenant finding an alternative location.

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Alliance continues to see very strong negotiating leverage with tenants… positioning Alliance to drive tremendous value for investors during the rental renewal process.

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There’s an added advantage for Alliance because many properties come up for sale as the renewal date approaches… especially from less financially sophisticated landlords, who are less experienced in the many challenges that often come up during renewal negotiations.

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This positions Alliance for “renewal arbitrage” by buying properties close to their renewal date and then structuring win-win rental agreements that are extremely attractive to the market if the property were to be sold again.

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