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July 13th, 2012Mall REITs Are Looking Sweet

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by Amanda Alix
DailyFinance.com

Despite depressing employment numbers, people are shopping, and that is leading to a rebound in the retail sector. For real estate investment trusts that invest in shopping malls, that news, combined with the fact that there has been sparse new mall construction for the past few years, is good news indeed.

As vacancies decrease and rents increase, mall REITs are seeing their luck change as the doldrums of the past four years begin to recede. A recent study cited by Bloomberg notes that the just-finished second quarter was the best in years for shopping malls, as reduced construction since 2008 has limited retail space. In addition, older, less successful malls are being razed and replaced by mixed-use space, rationing available space even more.

Malls have been under strain, but are beginning to rebound
Shopping malls have been hit hard since the financial meltdown, and less upscale properties have suffered the most. With shoppers migrating to higher-end malls, many of these sites are being recycled into office space or apartments. Some experts opine that approximately 10% of the current mall space will be reutilized in this manner. Also, the declining fortunes of anchor-store giant Sears Holdings (NYS: SHLD) has forced a change in the mall landscape, as center owners ponder comparable replacements.

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