Shifting cultural trends can make or break brands. Which ones are best positioned to benefit from changes in how and where people shop in 2023? Foot traffic measurement firm Placer.ai has some ideas based on its geospatial, psychographic and consumer movement data.

Bob’s Discount Furniture (168 stores)

Stores located near lower-priced homes are benefiting value-focused home furnishings retailers. Home decor and furniture retailers’ sales increased during the pandemic, and while that jump has faded, sales for value-focused chain Bob’s Discount Furniture have continued to grow. Foot traffic at Bob’s stores climbed 27.6% year over year in October and 13.4% year over year in November. Compare that with overall visits to home decor and furnishings stores, which tumbled 16.1% in November and 22.2% in December. The apparent strategy of locating stores in areas with less-expensive housing stock is contributing to the chain’s growth. As the cost of buying homes continues to increase, would-be buyers in lower home-value areas may opt to redecorate rather than move, according to Placer.ai. In the third quarter, 22.4% of Bob’s stores operated in areas where the value of owner-occupied housing averaged $100,000 to $200,000 range. That’s up 18% from a year ago.

Hibbett (1,096 stores)

The sporting goods brand has found success as a big fish in small ponds. The company opens stores in small and midsize, underserved markets with limited direct competition, allowing Hibbett to capture all local market share. The retailer posted year-over-year foot traffic growth for nearly all months in 2022, Placer.ai reported.

Grocery Outlet Bargain Market (425 stores)

The grocer makes opportunistic inventory purchases and passes the savings to consumers, who increasingly are seeking more food for less. Visits to the company’s stores grew 10.1% year over year in the third quarter of 2022, and visitors grew 11.8%, according to Placer.ai’s data. Grocery Outlet Bargain Market also has expanded to New York.

Total Wine Spirits & More (235 stores)

U.S. Retail Vacancy Hits Rock Bottom as Rents Continue to Climb

Shopping center vacancy has hit the lowest level on record, dating back to 2007, according to Cushman & Wakefield.

Asking rents for shopping centers nationwide rose by 0.8% from the third quarter to the fourth to an average of $22.99 per square foot, while the vacancy rate declined 20 basis points to 5.7%. Net absorption accelerated to 10.9 million square feet, up from the midyear lull — absorption averaged 9.4 million square feet over the second and third quarters — but still was down from 12.9 million square feet in the fourth quarter of 2021. Net absorption is the square feet that become physically occupied minus the square feet that become physically vacant during a specific period.

Sixty-six of the 81 markets tracked by Cushman & Wakefield experienced positive net absorption. Leading the way were Chicago with 1 million square feet; Phoenix with 788,000; Atlanta with 574,000; Denver with 422,000; Washington, D.C., with 397,000; Dallas-Fort Worth with 392,000; and New York City with 353,000.

Philadelphia; Hartford, Connecticut; Buffalo, New York; and Albany, New York; each saw a net decline in absorption, as did a handful of secondary markets in the South and West.

Well-funded retailers keep expanding because retail fundamentals haven’t flinched, said Cushman & Wakefield executive managing director and head of retail services Barrie Scardina. “Retailers seem to be confident enough that inflation and a probable recession in 2023 will not be overly disruptive to business; store openings in 2022 outpaced closures by nearly 2,500, the largest net expansion in a decade.”

Lowe’s CEO Says Physical Stores Are a Competitive Advantage

1031 Buyers Disappear as Interest Rates Rise

High borrowing costs are hindering the market for single-tenant, freestanding retail properties, causing many such properties to sit on the market and prompting cap rates to expand, according to The Boulder Group’s quarterly analysis. U.S. single-tenant retail cap rates hit an average of 5.95% in the fourth quarter, up 20 basis points from the historic lows of the first quarter of 2022. A cap rate is generally calculated as the ratio between the annual rental income produced by a real estate asset and its current market value.

Private and 1031 exchange buyers who are active in the market are using less or no debt, given the spread between cap rates and current borrowing costs, according to Boulder Group president Randy Blankstein.

In the fourth quarter, the supply of net lease properties increased by more than 10%. Cap rates for recently constructed properties leased to Dollar General rose 40 basis points from the third quarter to the fourth. Other notable increases for recently constructed properties include 7-Eleven’s 25 basis points, DaVita Kidney Care’s 25 basis points and Starbucks’ 15 basis points.

Transaction volume for the net lease sector will continue to lag the robust transaction levels of 2021, Blankstein said. A declining pool of 1031 buyers will focus mostly on prime assets.

More Net Lease News

Proptech Update: Lessen Buys SMS Assist

Consolidation in the property management technology sector is nothing new as residential-focused firms have pursued business in other sectors, but the latest deal in the sector is something different. Startup firm Lessen, which helps landlords find contractors, raised $500 million in venture capital to fund the acquisition of rival tech firm SMS Assist for $950 million. “A venture-backed technology company purchasing an incumbent player is not something you see every day,” said Brad Greiwe, co-founder and managing partner at Fifth Wall, a proptech-focused venture capital firm with a stake in Lessen. Greiwe attributed the rare move to faith in Lessen founder and CEO Jay McKee and his success in growing the firm since its 2020 founding. The merged companies will serve a portfolio of 250,000 residential and commercial properties and facilitate 2.5 million repair and maintenance orders per year. Investors in the SMS deal include AMH, Invitation Homes, Koch Real Estate Investments Invitation Homes, Monroe Capital and Värde Partners.