The fourth quarter of 2020 closed with a vacancy rate of 4.6%. This is up from 4.4% at the end of the third quarter. It also continues the trend of rising vacancy dating back to Q1. Despite rising vacancy rates and an absorption rate of negative 245,694 square feet (“SF”) for the quarter, average asking rental rates increased by $0.17 over the previous quarter. This is a positive sign, as the COVID-19 pandemic has greatly stifled demand.
Notable fourth quarter lease transaction include Dick’s Sporting Goods renewing their lease of 77,000 SF at Monroeville Mall, Hot Tub Factory Outlet leased 6,000 SF in Monroeville and Keystone Wrestling leased 6,000 SF in the McCandless neighborhood of the North Pittsburgh submarket. In the Northeast submarket, Goodrich Theaters will occupy 77,000 SF of theater space at the Pittsburgh Mills Mall. While smaller local retailers continue to struggle, larger national chains continue to seek space. Modwash, Chipotle and Dollar Tree are examples of national retailers currently in the market.
As Americans shelter in place, e-commerce thrives. Traditional brick and mortar is changing as the omni-channel model is becoming ever more prevalent. Retail spaces are increasingly being used as fulfillment centers for pick up and deliveries. Grocers are a prime example of in-store foot traffic being replaced by home delivery services. Banks have seen a significant switch to online transactions. Several other types of retailers continue to struggle, whether due to legal restrictions or sanitary precautions. As winter sets in, weather has made it increasingly difficult for restaurants to utilize outdoor spaces for seating, greatly prohibiting seating capacity. Movie theaters are finding these times particularly challenging. Cinemas require patrons to share public spaces and, like restaurants, social distancing has greatly reduced capacity. For these reasons, many films have decided to release both in theatres and via various streaming services at the same time, reducing the viability of cinemas.
As we enter 2021, vacancy rates should stabilize while rental rates should remain relatively flat. The trend of negative absorption, dating back to early 2020, is expected to slow. Developers will be skeptical to bring new product to market causing deliveries and ground breakings to decline. Recent news of the distribution of vaccines has shed a positive light and provides hope for the coming year. E-commerce is only going to grow, but as the world recovers from the pandemic retailers will once again play a major role in the national economy.