Retail property rental rates have been climbing higher and higher over the past several years, causing retailers to break a sweat over how much longer this can go on.
"It has been a landlord’s market with rents increasing, vice chairman of RKF Robert Cohen says, "and I think there’s still steam in the engine."
Urban markets have got it especially bad, with some prices exceeding the precious cycle's peak. Urban retail property rates lagged behind the national average during the recession but now outpace it by almost $2 per SF.
For retailers that signed favorable leases during the economic downturn, lease renewals could be a rude awakening. "It’s going to be a bitter pill, and they may not be able to swallow it," Robert says.
It's only going to get worse, as more retailers follow the many Americans flocking to cities like New York, Boston and San Fran. And retail development is lacking, causing more competition.
Core markets like these have outperformed all markets in terms of rental rate growth, Costar says, at a rate of 5.4% in Q2 2015, while other markets grew at 2.6%. Retailers now revaluate for new strategies, such as relocating to emerging markets or boosting e-commerce sales. [NREI]
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