The retail sector continues to show resilience in the third quarter, according to data from major brokerage firms. However, a decrease in space delivery is putting pressure on absorption.
Cushman & Wakefield’s MarketBeat U.S. National Shopping Center Report for Q3 2023 highlights strong fundamentals supported by healthy tenant demand and consumer spending. On the other hand, JLL’s United States Retail Outlook Q3 2023 reports limited supply hindering leasing activity.
The lack of available space in desirable locations is attributed to higher construction costs and demolition of outdated spaces as noted by JLL. CBRE’s Q3 2023 U.S. Retail report reveals that overall retail availability has reached an 18-year low due to this shortage of space and lower construction deliveries. As a result, Lee & Associates’ Q2 2021 Retail Review reports that absorption growth is about 25% below the average over the past two years.
This scarcity combined with increased retail sales post-pandemic has led to rising asking rents according to analysts at Lee & Associates who note that discounters are driving most of this demand while JLL adds quick-service restaurants, fitness companies and experiential tenants also taking up more space.
CBRE predicts moderation in asking rent growth as landlords anticipate a potential easing of demand due to economic slowdowns while Cushman & Wakefield remains optimistic despite acknowledging challenges posed by current macroeconomic conditions stating “If a global pandemic couldn’t destroy retail then certainly not even recession can.”
Overall it seems like there will be some softness but it won’t compare with previous disruptions over recent years.
In summary: Third-quarter data from major brokerage firms shows continued resilience in the retail sector despite decreased delivery of new spaces affecting absorption rates negatively.On one hand,Cushman&Wakefield’sMarketBeatU.S.NationalShoppingCenterReportforQ32023 indicates strong fundamentals driven by robust tenant demand&consumer spending.However,JLL’sUnitedStatesRetailOutlookQ32023 reports limited supply hindering leasing activity.The shortage of available spaces in desirable locations is due to high construction costs&demolition of outdated spaces as noted by JLL.CBRE’sQ32023U.S.Retailreport reveals an 18-year low in overall retail availability caused by this scarcity&lower construction deliveries.Lee & Associates’ Q2 2021 Retail Review notes a slower absorption growth compared to the past two years,attributed to lack of space and increased retail sales post-pandemic. This has led to rising asking rents primarily driven by discounters accordingtoLee&Associatesanalysts.JLL adds quick-service restaurants,fitness companies,and experiential tenants are also taking up more space. CBRE predicts moderation in rent growth as landlords anticipate easing demand due toeconomic slowdowns.However,Cushman&Wakefield remains optimistic despite acknowledging challenges posedbycurrentmacroeconomicconditions,stating”Evenifaglobalpandemiccouldn’tdestroyretail,recessioncertainlywon’teither.”Overall,it seems like there will be some softness but it won’t compare with previous disruptions over recent years.
