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Small-shop leasing strong in 2Q, open-air retail REITs say

August 2, 2018

Strong demand for small-shop space helped offset any vacancies caused by Toy 'R' Us and other big-box tenants in the second quarter, according to open-air shopping center REIT executives.

Kimco Realty Corp. reported same-center net operating income growth of 3.8 percent, thanks in part to strong small-shop leasing. The REIT’s portfolio posted a small-shop occupancy rate of 90.2 percent, the highest level since the firm began reporting this metric, in 2010. New-leasing spreads were at 11.5 percent, the seventeenth consecutive quarter that the rental rate for new leases increased by upwards of 10 percent. “Demand for small shops is being driven by multiple retailers expanding in the restaurant; services; health and wellness; medical; and fitness categories,” CEO Conor Flynn told investors on a conference call.

Brixmor Property Group boosted same-center NOI by 1.4 percent for the quarter. The firm did so by executing some 2.1 million square feet of new and renewal leases at comparable-rent spreads of 14.3 percent across its 471 properties, including 1 million square feet of new leases at comparable-rent spreads of 28.7 percent. “Our overall lease occupancy grew [by] 40 basis points sequentially, to 92.5 percent,” said President and CEO James Taylor. “And, importantly, we're starting to see the momentum in our small-shop leasing, as that increased by 70 basis points sequentially.”

DDR Corp.’s small-shop leasing growth is driven by strong macroeconomic trends, according to President and CEO David Lukes. “Shop occupancy is much more correlated to GDP and employment rate than boxes are,” Lukes said. Second-quarter same-center NOI grew by 1.8 percent across the firm’s 78-property portfolio. Small-shop leasing was key, according to DDR Executive Vice President and COO Michael Makinen. “We continue to see strong small-shop leasing volumes and economics, a product of high demand for those spaces and [of] our renewed focus on this inventory in our portfolio," Makinen said. "As a result of our efforts, we’ve seen a 50-basis-point increase in [the] new DDR shop-lease rate since the first quarter.”

By Brannon Boswell

Executive Editor/SCT

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