South-Western EconNews

It's getting harder and harder to find empty mall space

Subject

Shopping Mall vacancy rates at their lowest level in 3 years

Topic

Supply and demand; Equilibrium

Key Words

mall, price, rent, demand, supply

News Story

For the top 62 U.S. shopping markets, vacancy rates in America's shopping malls stood at 5.3% for the fourth quarter of 2004, down from 5.5% in the third quarter of last year. This represents the lowest vacancy rate since early 2001.

As a result, rental rates increased 0.8%, from $37.60 per square foot to $37.89 per square foot. This represents an increase over early 2004, where a series of bankruptcies, including KB Toys, Inc; Gadzooks, Inc; and Footstar, Inc; significantly reduced the rental rate. Despite these large chain failures, demand for space remains high, and fewer companies are expected to declare bankruptcy at the same rate as in the early 2000s.

Strip mall space tells a different story, though. Vacancy rates in strip malls stand at 6.8% for the fourth quarter of 2004. With an additional 28.5 million square feet of strip mall space in 2005 expected, the vacancy rate is projected to increase to about 7%.

Questions

1.	Indicate with a graph of supply and demand what is happening in the rental market for shopping mall space.
2.	Calculate the elasticity of supply with respect to the rental rate; that is, what is the percentage change in vacancy rates with respect to the percentage change in the rental rate. Is it elastic or inelastic?
3.	Indicate with a graph of supply and demand what is happening in the rental market for strip-mall space. What would you expect to happen to the rental rate for strip malls in 2005?

Source

Ryan Chittum. "Shopping-mall Vacancy Rates Decline to 5.3%." The Wall Street Journal.. 25 January 2005.