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business Friday 23 OctOber 2020
Rising vacancies, declining rents squeezing apartment REITs

By ALEX VEIGA businesses and the billions
AP Business Writer in aid that the federal gov-
LOS ANGELES (AP) — The ernment poured into the
pandemic is squeezing big economy, including loans
apartment building own- for companies to keep em-
ers, with a surge in vacan- ployees on the payroll and
cies leading to a decline in a supplemental $600-a-
rent growth for the first time week unemployment ben-
in years. efit package.
The U.S. vacancy rate for That beefed-up unemploy-
apartments rose to 5% in ment aid expired at the end
the third quarter from 4.6% of July, and efforts by Dem-
a year earlier, according ocrats and Republicans
to Moody's Analytics REIS. in Washington to reach a
That's the highest national deal on a new round of
vacancy rate since the fiscal stimulus have yet to
first quarter of 2012. The yield results, fueling worries
firm predicts vacancies will that there could be a wave
climb to 5.4% by the end of of missed payments by
this year and continue ris- renters among the millions
ing in 2021. of Americans who remain
Meanwhile, a measure unemployed.
called effective rent de- As of last month, the econ-
clined 1.8%, the largest A pedestrian walks past an empty business available for lease, Monday, Oct. 12, 2020, in omy has recovered slightly
drop going back to at least downtown Surfside, Fla. Associated Press more than half the 22 mil-
1999, when Moody's began lion jobs wiped out by the
publishing quarterly data. jority being actual months with owners of office and as the pandemic and re- coronavirus. Some econo-
Effective rent is what's left of free rent." retail space, two commer- cession drag on. Because mists say it could take as
after taking out conces- Still, what's good news for cial property types also of their tax structure, REITs long as late 2023 for the job
sions offered by landlords tenants is usually not fa- hit hard by the pandemic are required to pay out market to fully recover.
to woo tenants. vorable for landlords, in- as more people work and most of their income, which As apartment owners
All told, 62 out of 82 major cluding real estate invest- shop from home. comes largely from rent sweeten their concessions
apartment markets tracked ment trusts, or REITs, that So far this year, the FTSE payments, as distribution to to win over new tenants
by Moody's recorded de- own apartments. Despite Nareit All Equity REITs Index, shareholders. or get others to renew, the
clines in effective rents in demographic trends that which includes 159 REITs, In the spring, as much of costs of those incentives is
the third quarter, up from continue to point to strong has a negative total return the economy shut down another red flag for Wall
two a year ago. demand for rental housing of about 11.1%, including in a bid to stem the coro- Street because they cut
The trends are a boon for as Generation Z comes of dividends, according to navirus from spreading, into REITs' profits.
people looking to move to age, uncertainty over how the National Association publicly traded apartment Most of the surge in con-
a new apartment, because long the pandemic will last of Real Estate Investment owners began to see a de- cessions is happening in big
they're likely to have a wid- and its impact on rental Trusts, or Nareit. By compar- cline in rent payments. The cities like New York and San
er selection and incentives households' ability to pay ison, the broader market estimated monthly share of Francisco, driving down
to lower their cost. rent, have dimmed the S&P 500 index is up about typical rent collected by rents. In New York, effective
"It's totally a renters' market outlook for apartment REITs 8.2%, including dividends. apartment REITs was 93.8% rents sank 7.2% in the third
in those large metros," said and turned off investors. The 15 apartment REITs in- in April, according to Nare- quarter from a year ear-
Joshua Clark, economist at While REITs overall are lag- cluded in the Nareit index, it. That rate bounced back lier, beating the Big Apple's
Zillow Group. "In many cit- ging the broader stock meanwhile, have a nega- over the summer, reaching previous record decline of
ies we're seeing extremely market this year, apart- tive total return of 26.2%. about 96% last month. 4.6% in late 2001, accord-
high shares of listings with ment REITs are among the Once concern is that more Some of that can be cred- ing to Moody's. San Fran-
concessions, the vast ma- worst-performing, along renters will miss payments ited to the reopening of cisco's fell 9.6%. q

Gap Inc. exiting malls, to shutter

350 stores by 2024

By ANNE D'INNOCENZIO As part of its restructuring, and other clothing retail-
AP Retail Writer Gap Inc. said it also plans ers are trying to reinvent
NEW YORK (AP) — Gap Inc. to close 130 of its Banana themselves during the pan-
is moving away from the Republic stores in North demic, which forced many
nation's malls. America in three years. non-essential stores to tem-
The San Francisco-based The announcement made porarily close in the spring
retailer, which was for de- at a Gap Inc. investor and early summer. The
cades a fixture at shopping meeting detailed a three- lockdown of the economy
malls around the country, year plan that calls for clos- led many shoppers to shift
said Thursday that it will be ing what amounts to 30% more of their spending to This Aug. 23, 2018, file photo shows a window display at a Gap
closing 220 of its namesake of the company's Gap and online, which many experts Kids clothing store in Winter Park, Fla.
Gap stores — or one-third Banana Republic stores in believe will be permanent. Associated Press
of its store base — by early North America and focus- "We've been overly reli-
2024. That will result in 80% ing on outlets and e-com- ant on low-productivity, brand, which was founded the real estate issues and
of its remaining Gap stores merce business. high-rent stores," said Mark in 1969. "We've used the accelerate our shift to a
being in off-mall locations. The moves come as Gap Breitbard, CEO of the Gap past six months to address true omni-model."q