When buying story stocks, one can believe the hype behind the story, or actually look at the facts. And when it comes to malls, and commercial real estate in general, the double dip, despite that whole consumer is recovering myth, is here. The WSJ report that "mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%." But wait: wasn't the resurging US consumer supposed to be able to carry the overbloated US retail front? That's part of the "story" - as for the "fact" Howard Davidowitz summarized it best: "We've got 21 square feet of selling space for every man, woman and child in this country." Perhaps it is time for the Fed to (again) start buying up empty retail boxes: because even the Fed knows what happens to equilibrium price when every bank is trying hard to reignite the CMBS market.

From the WSJ:

Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.



The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990.



In 2005, the mall-vacancy rate hit a low of 5.1%. For strip centers the boom-time low vacancy rate was 6.7% that same year.

Yet nothing seems able to derail the two year long REIT fest. Not even lack of cash flows from insolvent tennants:

Not all retail properties have suffered as much, especially on the high end. Large, publicly traded mall owners like Simon Property Group Inc. and Taubman Centers Inc., which tend to own top-tier properties, have trimmed their vacancy rates to 7% or lower and lifted their lease rates in the past year, buoying their stock.



But a broader glut has struck some of the exurbs that saw heavy housing development during the boom, where malls and strip centers built for growth that never came. More than one billion square feet of retail space was added in the 54 largest U.S. markets since the start of 2000, according to CoStar Group's Property & Portfolio Research Inc. of Boston.

The next shoe to drop in the retail story is the tsunami of retailer bankruptcies, which has already claimed many:

In part, the decline reflects a continued drag on spending from the recession. But many retailers that had been stalwart mall- and strip-center tenants, like Borders Group Inc. and Blockbuster Inc., have floundered. Even successful chains have closed and shrank hundreds of stores as they retrenched.



Vacancies and falling rents have especially hurt strip centers. Some regional grocers have been clobbered by the downturn and new competition from big box stores like Wal-Mart, hurting strip centers anchored by their stores.



The Great Atlantic & Pacific Tea Co., the onetime retail goliath that had shrunk into a northeastern supermarket chain operating grocery stores such as A&P and Pathmark, sought bankruptcy protection in December and said last month it was closing 32 stores.



Some landlords have hedged against the impact of online shopping by adding more tenants like restaurants, entertainment venues, fashion stores and other wares not often bought online. Longtime strip center tenants like dentists and tax preparers are even more coveted now.

Yet for those who recall the summer of 2008, it was precisely the restauranteurs that were the next to go, when oil passed $120.

With a slew of retailers preparing to file for bankruptcy in the next 3-6 months absent a massive drop in commodity prices, the mall situation is about to get far worse. In the meantime, while the "story" (no matter how flawed - after all Ackman wrote a 100+ page presentation to make it very credible) fizzles, keep buying the GGP hype. And the "FD" in general.