The recovery for the retail sector may not be dramatic, but it is happening. As demand continues to surpass supply, the vacancy rate for neighborhood and community shopping centers declined by 10 basis points in Q4 to 10.0%. The vacancy rate for malls also declined by 10 basis points in the quarter to 7.8%.
Asking and effective rent growth each grew by 0.5% in Q4. “This was the best calendar-year performance for rent growth since 2007, before the recession,” said Ryan Severino in the REIS Q4 Preliminary Retail Sector Trends report.
Several trends continue for the retail sector: the rise of ecommerce and proliferation of new retail types are debatably taking demand away for traditional retail and the “rift between the performance of dominant and inferior malls” is still ever-present.” Severino said, “The rich are still getting richer while everyone else is just plodding along.”
However, the latest study from ICSC seems to squelch ecommerce concerns: 91 percent of holiday shoppers made purchases in a physical store, reported ICSC. “‘Looking back at the holiday season, the major trend that emerged is the prevalence of the omni-channel consumer and the resulting convergence among brick and mortar and digital retail,’ said Tom McGee, president and CEO of ICSC. ‘The story of bricks vs. clicks is an old one. The story is now one of a shopper getting the best of both worlds, using online research and capabilities to inform physical purchases. The American consumer has sent a clear message that the physical store remains at the epicenter of the shopping experience.’”
Retail isn’t dying, it’s just changing. According to Retailing Today, “The first week of the New Year saw a wide range of companies disclose what proved to be a real mixed bag of results for the holiday season,” mentioning Macy’s negative results. In fact, USA Today lists Macy’s as one of five retailers “suffering in a changing retail world.” The retailer plans to close 40 stores as a result of lackluster holiday sales. “On an owned basis, comparable sales declined by 5.2% in the combined November/December sales period,” reported CoStar. Other retailers like J.C. Penney, American Eagle Outfitters and Steinmart fared better.
The 17th annual Deloitte outlook report, Commercial Real Estate Redefined, referenced the fact that analysts expect 50% of American malls to close by 2030 and that the lines have begun to blur between retail and industrial properties. Among the predictions are the idea that retail properties will be used in different ways, possibly doubling as fulfilment centers.
Back to present day, “With some signs of improvement in wages finally materializing, the outlook for discretionary spending and thus demand for retail space, is brighter in 2016 than at any point in time since before the recession. Moreover, the massive declines in the prices of energy and imports, due to the strong dollar, have masked the relatively strong performance of the US consumer over the last couple of years. Clearly, not all of those dollars being spent are occurring in traditional retail formats like malls and neighborhood and community centers, but enough of them still are,” said Severino.
It seems the proliferation of new retail types simply means that consumers have more choices. Amy Wenk of The Atlanta Business Chronicle named the “explosion of new grocery stores” as one of the top real estate stories in Atlanta for 2015, stating “While familiar brands including Kroger, Whole Foods and The Fresh Market focused on adding locations in urban markets, new-to-market chains such as Sprouts Farmers Market and Earth Fare entered the suburbs with affordable, natural food items.”
Simply put, the forecast for retail is continued improvement, albeit at a gradual pace. REIS expects that vacancy will decrease which will lead to accelerated rent growth over the next few years.
Bull Realty, Inc., Research