Strip-Mall Vacancies Hit
Four-Year High Point

Vacancies at strip malls in the second quarter hit their highest point in nearly four years as retailers opened fewer stores.

The vacancy rate edged up to 7.3% in the second quarter from 7.2% in the first quarter and 6.9% a year ago, according to a new survey of the top 76 U.S. shopping-center markets by Reis Inc., a New York real-estate research firm. Nevertheless, rents are still rising at a solid clip. They were up 0.8% in the second quarter to $17.42 a square foot from $17.28 in the first quarter.

"Our view right now is that potential retail lessors have some concern about the moderating of consumer spending growth," says Sam Chandan, chief economist at Reis.

Net absorption -- the change in the amount of occupied space -- was the weakest since the third quarter of 2003, at three million square feet, down from an average five million square feet over the last several quarters.

Shopping-mall vacancy was flat at 5.6% in the second quarter with rents up 0.9% to $40.27 a square foot from $39.93 in the previous quarter.

Pension Payoff

It has been a good two weeks for the real-estate investments of two of New York City's large pension funds.

Four years ago, city comptroller William C. Thompson Jr. said the New York City Employees Retirement System and the New York City Teachers Retirement System would invest in real estate in the five city boroughs through a joint venture with closely held Tishman Speyer Properties -- raising questions about whether the city should do business with local developers. Included in the partners' investments were the 2004 purchases of 885 Third Ave. -- dubbed the "Lipstick building" for its slick veneer -- at a price of $235 million, as well as what was then the New York Times headquarters at 229 W. 43rd St. for $175 million.

In the past couple of weeks, the investments have paid off nicely for the pensions, giving some vindication for Mr. Thompson's reasoning at the time that the funds should invest prudently but also enhance economic development. Yesterday, Metropolitan Real Estate Investors, Los Angeles, closed on the Lipstick building at a price of $607 million. Profits on the Times building purchase were even better. Africa Israel USA, an Israeli holding company, closed June 29 on the building for $525 million. After initial investments of about $71 million in the buildings, the pension funds received about $365 million in return.

The pension funds "were prescient to focus their initial investments efforts on New York City," says Rob Speyer, Tishman Speyer's senior managing director. "You couldn't have made a better bet than investing in prime midtown Manhattan assets in 2003 and 2004."

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