U.S. retail vacancy has reached new lows as retail fundamentals remain surprisingly strong, according to Cushman & Wakefield research.
During the fourth quarter of 2022, vacancies overall dropped 20 basis points to 5.7%, the lowest that particular metric has been since 2007, just before the onset of the Great Financial Crisis, the company reports.
Moreover, asking rents for shopping centers rose during the quarter by 0.8% to an average of $22.99 per SF, as the nation experienced a net positive of 10.9M SF of retail space absorption and low levels of new development. That was the seventh quarter in a row of positive U.S. retail absorption.
At a more granular level, 66 of the 81 markets tracked by Cushman & Wakefield experienced positive net absorption during Q4, with Chicago leading the way at 1M SF.
Other active retail leasing markets for the quarter were Phoenix, with 788K SF absorbed, followed by Atlanta, Denver, Washington, D.C., Dallas/Fort Worth and New York City. However, Philadelphia, Buffalo and Albany, New York, each saw net declines in absorption, and so did a number of secondary markets in the South and West.
Another positive metric for retail property owners is the fact that the pace of new construction remains slow compared to pre-pandemic levels, though there was an uptick over the second half of 2022.
Retail space completions totaled over 2M SF in Q4 after 1.5M SF came to market in Q3. Even so, the total retail completions of 4.7M SF in 2022 were more than 80% below the average from 2015 to 2019, the company reports.
“Retailers seem to be confident enough that inflation and a probable recession in 2023 will not be overly disruptive to business,” said Cushman & Wakefield Executive Managing Director and Head of Retail Services Barrie Scardina in a statement.
Scardina noted that U.S. store openings in 2022 outpaced closures by nearly 2,500, which represented the largest net expansion in a decade. Besides core retail, such tenants as medical, entertainment and dining are driving demand for space more than they have in past economic cycles, he said.
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