Here's Why Commercial Real Estate Is Still Struggling

While the US housing market may be on the upswing, it seems commercial real estate is still struggling with lackluster demand.

Reis Inc REIS released a report this week showing that US retail malls were shrinking, a nod to falling store traffic and struggling department stores. The report showed that vacancies had risen to 8 percent in the fourth quarter, a mild increase from 7.9 percent in the third.

While much of the increase was attributed to Sears Holdings Corp’s SHLD decision to close down several stores, it also represents a growing trend toward online shopping at major retailers like Amazon.com, Inc. AMZN.

Most large brands have established their own websites in order to compete, but rising rent costs have made it more difficult for brick and mortar stores to stay open. In line with those sentiments, new construction for shopping centers also fell in 2014. 

Related Link: Chinese Tech Firms Are Looking To The US For Demand

Retail space wasn’t the only type of real estate on the decline; office space vacancies came in at 16.7 percent in the fourth quarter, a modest improvement from 16.9 percent in the third. Cost cutting has many large firms reluctant to trade up for a larger space, meaning that most businesses wait until they have reached capacity before moving to another office.

Open air style office spaces have also been gaining popularity after tech companies like Google Inc GOOG GOOGL touted increased employee production and lower stress levels at their cafeteria-style offices.

The number of remote workers has also increased over the past decade, especially in the tech space. Cloud based computing has made it possible for many workers to spend the majority of their work week at home, thus eliminating the need for larger corporate offices.