Retail Resilience Amid Challenges

In 2023, the retail sector faces challenges with some major chain failures and shifts in central business district dynamics due to remote work trends. Yet, despite the hurdles, retail is proving to be a resilient and preferred investment. Here’s why:

1. Consumer Resilience:
– Consumer spending remains resilient, up 2.5% over 2022 levels in August 2023.
– Retail sales have shown positive growth since May 2020, indicating stability despite economic headwinds.
– Excess savings from the pandemic have diminished, and economic challenges may impact consumer spending in the fourth quarter.

2. Growth Plans Amid Challenges:
– Chains like Dollar General have adjusted expansion plans, but most chains are moving forward with growth targets.
– Challenges lie in the lack of available quality space rather than a pullback in growth plans.
– Potential economic downturns may create new opportunities for expansion.

3. Suburban Strength:
– Suburban migration, accelerated by the pandemic, is influencing retail performance positively.
– Grocery-anchored community/neighborhood shopping centers in the suburbs show the lowest vacancy rates in 20 years.
– Power centers and unanchored strip centers in suburbs also exhibit low vacancy rates, contributing to retail’s rebound.

4. Impact of New Construction:
– Retail development in 2023 is around 25% of pre-GFC levels, impacting market equilibrium.
– Economic factors and construction costs are limiting new projects despite a tight market.
– Delivery of new retail space is increasing but remains below pre-GFC averages.

In summary, despite challenges, retail’s resilience, consumer spending, suburban strength, and cautious development contribute to its status as a favorable investment in the commercial real estate landscape. Stay tuned for more insights into the evolving retail market. #RetailRealEstate #CommercialRealEstate #InvestmentInsights

Author: Alex Navarro

Reference: PwC