Several national chains are talking up demands for reduced retail rents at locations across the country, according to a post in BNET.
That can't be good news for strapped mall operators, such as Simon Property Group (NYS: SPG), which have recently seen their fortunes turn upwards on the backs of analyst upgrades and economists calling a bottom to the Great Recession.
The post goes on to discuss how shopping center owners are taking a hard line on rent reductions. Developers Diversified Realty (NYS: DDR), a large mall operator, has granted less than 5% of the total number of rent relief requests. All well and good, but mall occupancies continue to slide and if the Swine Flu epidemic impacts mall traffic -- which seems more than 50% likely -- struggling retailers could be pushed further into the red, possibly to the point of more bankruptcies.
If the vacancy rates go up at malls, then shared costs for advertising and maintenance will likewise go up, forcing remaining tenants to pony up more bucks and head towards a vicious downward spiral. In turn, newer tenants will refuse to pay the same rents as existing tenants, which will then give the existing tenants recourse for demanding lower rents.
So maybe the hard line worked for a little while, but it's hard to imagine such a line will continue to work going forward. Piqqem Sentiment for SPG and DDR remains highly negative. All eyes are looking to the ongoing bankruptcy proceedings of the biggest mall player, General Growth Properties, for clues as to how this is going to shake out.
Alex Salkever is the Director of Research at Piqqem.com, a stock prediction community powered by the Wisdom of Crowds.
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