Foot traffic and retail sales are declining at U.S. shopping malls, and the reason is no surprise: the relentless rise of online retail.
Yet Credit Suisse still expects real estate investment trusts focused on malls to perform quite well.
A paradox? Not quite.
First, sales remain strong at so-called class-A malls that include chic foreign brands such as Zara and Uniqlo. What’s more, the forces of supply and demand seem to be doing their thing: recent growth of mall square footage has been just 1 per cent per year, and the result is a 94 per cent occupancy rate.
With little slack, owners should be able to raise rents by an average of 13 per cent in 2015, according to Credit Suisse, which also forecasts that malls will be the best investments among REITs in 2015, expecting them to yield 14 per cent returns. Take that to the bank — it’s on the second level, just past the food court.
The Financialist is a digital magazine presented by Credit Suisse that looks at the trends and ideas that drive markets, businesses and economies.
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