The final article of a five-part series focused on retail’s 10-year transition, and featuring insight from industry leaders.
By Amy Wolfe Sorter | August 1, 2024 | As published by Connect CRE
In this fifth and final article of a five-party series, experts share their retail sector outlook—and ICSC commentary—with Connect CRE. The other articles, “Investors, Stores and Restaurants: An Increasing Mix,” “Understanding the Retail Sector: Where We’ve Been and Where We Are,” “Retail Economics: Supply, Demand and Consumer Dollars,” and “Just what IS the Best-Performing Retail,” are live.
Consumer spending seems to be robust. At least according to the recently released gross domestic product estimate. Ongoing spending—especially in the face of inflation and higher prices—is one reason why experts in the retail space told Connect CRE that their outlook remains bullish. Additional fundamentals also demonstrate the ongoing strength of retail and underline its turnaround from the pandemic doldrums of 2020 and 2021.
“The overall outlook for the retail sector is extremely positive,” said JLL’s Executive Vice President and National Agency Retail Lead Chris Wilson. “Excluding a consumer recession, we should expect explosive retail activity in development and acquisitions in the next 24 months.”
Scarce Space Continues
The main issue with retail these days is the ongoing lack of space. Cushman & Wakefield’s Q2 2024 U.S. National Shopping Center Report noted a 5.3% vacancy rate, with just 11.3 million square feet under construction. The report said the lack of new supply coming online will keep availability tight.
Bob Myers, president of Philips Edison, explained that supply scarcity has existed for at least a decade. These days, “current economic returns don’t justify new construction,” he noted. He added that many of the retail spaces in the Phillips Edison portfolio have a tenant waitlist.
On the other hand, retailers are on track to continue expanding however they can. “They’re continuing to grow as they open new locations in suburban centers that are closer to the consumer,” Myers said.
Differences in Retail
Diving a little further into the different kinds of retail, the experts said that necessity-based stores (think grocery and similar offerings) will continue to perform very well. “No matter the economic climate, people need to buy groceries and get their nails and hair done,” said Coreland Companies’ Principal Matthew Hammond.
Another plus for grocery-anchored centers is the tenant mix. While different offerings appeal to consumers, “investors like the large mix of tenants,” Hammond pointed out.
But not all shopping centers will excel during the outlook. Hammond explained that the “A” shopping centers, which are well-located and offer experiential retail, should thrive. “The ‘B’ and ‘C’ centers will struggle,” he added.
In addition to the grocery-anchored centers, Myers said he sees quick-service restaurants, health and beauty locations and medical retail performing well. “These offer affordable and easily accessible options for consumers looking for convenience at every turn,” he noted.
The Evolution—and Economics—of the Sector
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