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It has been a brutal half-decade for retail owners amid record-breaking retailer bankruptcies and a pandemic that brought in-person shopping to a temporary halt. But the fundamentals of retail real estate are looking better now that at any point in over a decade, according to a new report.
Retail availability nationwide is at its lowest level since before the Great Recession, according to a new CoStar analysis. Asking rents are growing faster than they have in more than 10 years as the pace of new construction hits record lows and retail demolition speeds up.
Developers built 34.6M SF of new retail space during the first six months of 2022 after construction hit a record yearly low in 2021, according to CoStar. More than 18M SF of retail space was demolished through June, after roughly 36M SF of retail was demolished last year, a record high.
“With more retail space being demolished than speculatively built, current development activity is contributing to the tighter fundamentals in the retail sector, an unusual situation for commercial property markets,” CoStar National Director of Retail Analytics Brandon Svec wrote.
National retail vacancy ended June at 4.9% — matching the national average at the end of 2019, according to a Marcus & Millichap report this week.
The raft of national retailer bankruptcies between 2017 and 2020 helped to cleanse the market of weaker players, resulting in fewer retailer bankruptcies through June this year than any year since 2015, according to CoStar.
Strip malls in densely populated communities — those with grocery stores, salons, fast-casual restaurants — are seeing the strongest performance overall, according to JPMorgan Chase's midyear outlook. While Class-B and C malls continue to wallow, they are becoming prime candidates for adaptive reuse strategies, which takes more obsolete space off the market.
Recessionary fears and inflation have roiled consumers' moods. The University of Michigan Consumer Sentiment Index dropped from 67 in January to 50 in June of this year, the lowest level in the history's index, according to data compiled by Eisner Advisory Group consultant Joseph Rubin.
The drop in mood hasn't coincided with spending — between June and July, consumer spending excluding automobiles rose 0.4%, according to U.S. Census Bureau data.
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