U.S. Retail Vacancy Hit a Historical Low 5.4% in Q3
Healthy tenant demand and resilient consumer spending are buoying the U.S. retail real estate market, according to Cushman & Wakefield’s Q3 2023 U.S. Shopping Center Marketbeat report. The U.S. retail real estate vacancy rate tumbled five basis points from the second quarter to the third and 40 basis points year over year to 5.4%, the lowest since Cushman & Wakefield’s dataset began, in 2007. This tight nationwide vacancy level pushed the average asking rents even higher in competitive markets, according to the firm.
Retail is holding up well, even as other property types wobble under the pressure of high interest rates, said Cushman & Wakefield senior economist James Bohnaker. “As consumer spending continues to increase, retailers continue to expand, with the number of store openings outpacing closures,” he said. Demographic and shopping patterns also are creating paths for service-oriented companies to move to larger locations, particularly in Sunbelt suburbs, he added.
The South remains the U.S. region with the tightest vacancy rate: 4.9%.
Developers are on track to set a record low for retail delivery for 2023, as only 2 million square feet of new retail space was delivered nationally in the first three quarters of the year at the end of the third quarter. Last year itself set a record low for retail completions, at 9.8 million square feet. Retail construction, though, is picking up. Cushman & Wakefield reported that 13.2 million square feet is underway.
U.S. retail asking rents ended Q3 2023 16.7% higher than at the end of Q3 2019.
This limited supply and high demand empowers landlords to push up rents. Average asking rents in the third quarter were $23.70 per square foot, a 4.5% increase from a year earlier. But a ceiling may be in sight. The 5% rent growth from 2021 to 2022 was the peak, and it has decelerated modestly over the course of 2023. Asking rents at the end of the third quarter of 2023 were 16.7% higher than at the end of the third quarter of 2019, according to Cushman & Wakefield.
“Retail has been in a constant state of evolution, and the next couple years will be no different,” Bohnaker said. “The challenge now is the macro environment; while there will be a period of softness, it’s more likely to be a blip compared to the disruptions over the prior decade. If a global pandemic couldn’t destroy retail, then a recession certainly won’t either. Yes, consumers will pull back and occupiers will turn more cautious, but structural forces have the sector well-positioned for the long haul.”
Consumer Spending Remains Strong, Defying Inflation and Rising Rates
U.S. consumer spending remained strong in September, despite rising inflation and interest rates. September retail and food services sales, excluding gas and auto, exceeded economists’ expectations, climbing 0.6% from August, according to the U.S. Census Bureau’s tally. “The data continues to point to a strong consumer despite high prices and borrowing costs and moderating wage growth,” said ICSC research manager Matthew Panfel. “It is also possible that some consumers are already starting their holiday shopping. According to ICSC’s holiday intentions survey, 79% of holiday shoppers said they planned to start earlier than usual this year.”
Miscellaneous retailers — a category that includes, for example, florists, thrift stores, pet stores and nonstore retailers like Amway and Amazon — saw the biggest growth in sales. Meanwhile, after a busy back-to-school season, sales at each apparel and electronics stores declined from August to September, while building materials and home furnishing stores struggled amid a slowdown in the housing market.
Howard Hughes Hires CEO for Spinoff
Howard Hughes Holdings named Anton Nikodemus CEO of Seaport Entertainment, a new division comprising Howard Hughes Holdings’ entertainment-related assets in New York and Las Vegas, including the Seaport in Lower Manhattan, the Las Vegas Aviators Minor League Baseball team, an ownership stake in Jean-Georges Restaurants and an 80% interest in the air rights above the Fashion Show mall, which are intended to be used for a new casino on the Las Vegas Strip. Howard Hughes Holdings intends to complete its spinoff of Seaport Entertainment as a publicly traded company by the end of next year, helping define Howard Hughes Holdings as a pure-play real estate company focused on master-planned communities. Nikodemus most recently served as president and COO of CityCenter for MGM Resorts International.
Gordon Brothers Hires North American Real Estate Services Heads
Michael Burden and Al Williams have joined Gordon Brothers as co-heads of North America real estate services. They will grow and expand the real estate services platform, providing full life cycle portfolio-optimization services to retail, office commercial and industrial clients. Previously, Burden and Williams were partners at ExcessSpace, a Newmark company.
By Brannon Boswell
Executive Editor, Commerce + Communities Today