Retail REITs reported strong leasing activity in the third quarter. Most reported that tenant sales, traffic and occupancy rates at their properties are back to pre-pandemic levels.

At Simon’s 203 properties, same-center net operating income jumped 52.7%. “Mall sales for the third quarter were up 11% compared to third-quarter 2019, up 43% year over year,” chairman, president and CEO David Simon said on an earnings call. “Our sales are over 2019 peak levels. These results are impressive, in particular, given the lack of international tourism, which we believe will start to increase after the restrictions on international travel are lifted.”

At Phillips Edison & Co.’s 289 properties, same-center NOI climbed 8.7% year over year and 4.3% compared with the third quarter of 2019. Occupancy increased to 95.6%, demonstrating a return to pre-COVID-19 levels. And the rental rate spread for comparable new leases was 14.1%, while the spread for renewals was 8.9%.

At Kimco Realty’s 545 properties, same-center NOI grew 12.1% year over year, not including the impact of its acquisition of Weingarten Realty. Rental rate spreads on comparable spaces during the third quarter of 2021 increased 4.9%.

Regency Centers reported that same-center NOI climbed 24.4% year over year, thanks in part to a 5.1% increase in rental rates at its 415 retail properties.

And at Federal, rental rates climbed 7%. “We had far fewer tenant failures than we anticipated, said CEO Don Wood. “And at $4.9 million, we had far higher percentage rent from COVID-modified and unmodified leases than we had anticipated.” Small shop leasing was strong at Federal’s properties. “Overall, small shop is up 260 basis points year over year,” said executive vice president and CFO Dan Guglielmone. “Leasing momentum continues to be driven by strength in our lifestyle portfolio.”

At Tanger Outlets’ 36 properties, leasing accelerated. Same-center NOI increased from $66.1 million for the third quarter of 2020 to $73.8 million, benefiting from significant growth in the amount of percentage rent paid by tenants. The landlord’s efforts to diversify its tenant mix and increase traffic by adding restaurants, grocers, home furnishings retailers, big-box retailers and, at one property, a whiskey distillery is paying off, said president and CEO Stephen Yalof.

Several REITs, including Federal and Tanger, brightened their financial outlooks for the fourth quarter and for 2022 based on the activity.

The reason for the robust leasing climate

So why is leasing accelerating so quickly at top retail properties, which are owned mostly by REITs? Consumer traffic is surging, and strong retailers are upgrading their real estate, Wood said. “Tenants are upgrading their space and having the ability to get into better real estate in a portfolio that was 89% occupied. That’s just as rare as it gets.”

Also, fewer tenants than expected have succumbed to the pandemic. “It has surprised me that we have not lost more tenants over the past six or eight months in 2021,” Wood said. “The notion of tenants holding on to their properties and finding a way to make it through and not wanting to lose their superior positions from real estate was greater than we expected.”