Last year may have been one of the strongest on record for national mall landlord Macerich, but accelerating leasing activity and retail demand are pushing the company even further beyond its pre-pandemic levels of growth.
The real estate investment trust said Tuesday that it had signed more than 190 leases this year through the second quarter totaling about 1.4 million square feet, marking a more than 20% jump compared to the same period last year.
That demand surpassed the leasing record set in 2022 — the landlord's best leasing year since the Great Recession — and indicated that top-tier slices of the nation's retail real estate market have largely been insulated from the shaky macroeconomic environment.
Macerich, based in Santa Monica, California, reported openings that filled more than 263,000 square feet across various retailers, pushing the landlord's portfolio occupancy up to 92.6% for the quarter ending June 30.
"It was, yet again, another strong quarter for us," Macerich CEO Tom O'Hern told analysts on the company's latest earnings call. "Leasing volume hit a record level, and the United States consumer continues to be incredibly resilient in the face of the challenging microeconomic climate we're facing today. We're seeing that at our centers. Consumers are shopping, eating out and traveling at pre-pandemic levels, and all of those are trends that bode well for our properties."
The executive said leasing demand has been widespread and "unabated," with interest stemming from a widespread mix of tenants in the health and wellness, food and beverage, hospitality, entertainment, sports and other categories.
"Interest is at a level we haven't seen before and helps with the densification and diversification of our portfolio," O'Hern said.
No Fallout Here
The retail landlord's performance underscores the strength in the national retail market despite concerns of a softening economy and an anticipated pullback in consumer spending. The demand for retail space climbed nearly 12 million square feet throughout the second quarter, marking the ninth consecutive quarter of growth for markets across the country, according to CoStar analysis.
Macerich, the owner of nearly 50 million square feet across 44 properties concentrated on the West Coast, around New York City and near Washington, D.C., is seen as a bellwether of real estate activity in the nation's malls.
Its focus on high-end, lifestyle retail centers has positioned the landlord to capitalize on trends such as shoppers preferring open-air retail properties to indoor malls, and tenants hunting for space in affluent suburbs instead of urban hubs.
Macerich's optimism has also been fueled by factors that spotlight the overall health of the retail market. For example, the industry has reported its lowest level of bankruptcies since 2013. Scott Kingsmore, the company's chief financial officer and treasurer, said Macerich's lease termination income has fallen by $21 million year to date, which is "largely reflective of the healthy retail environment we’re in with much less tenant fallout."
After a deluge of store closings, retail bankruptcies and operating restrictions in the years leading up to and throughout the pandemic, retail landlords such as Macerich are finally in a position to leverage strong consumer spending and shoppers' eagerness to abandon their computer screens to visit stores in person.
The widespread return to brick-and-mortar shopping has meant a broad spectrum of retailers compete for a limited space, especially in high-demand properties. The national retail market reported its tightest vacancy rate on record, with less than 5% of all retail space available for lease by the end of the year's second quarter, according to CoStar data — far below the historical average of about 6.8%.
For Macerich, that adds up to a strong leasing pipeline that will result in about 2.8 million square feet of new store openings through 2025, a figure that doesn't include renewals and far outpaces the amount of space the company signed in 2022 in terms of square footage and annual rent revenue.
Once realized, those deals are expected to total about $66 million in incremental rent for Macerich.
"That will continue to grow for us as new deals are approved and signed," said Doug Healey, the company's executive vice president of leasing. "All of these new uses will significantly increase foot traffic to our properties."