The latest data from the U.S. Census Bureau shows that retail and food service sales in January 2024 reached $700.3 billion, a 0.6% increase from the previous year. This growth can be attributed to strong consumer spending during the final quarter of 2023, which helped sustain a robust commercial real estate (CRE) retail sector.
Reports for Q4 of 2023 also highlighted tight space availability as demand for quality retail spaces continued to rise due to steady consumer spending and tenant demand.
Limited construction activity was observed since the pandemic began, with even fewer new developments being initiated due to higher interest rates and risk aversion among financing sources such as banks. As a result, there is now a shortage of quality shopping center spaces available for lease.
Sunbelt states were identified as having the most active markets in Q4 of 2023, with cities like Dallas and Charlotte experiencing an annual rent-growth increase of over five percent according to JLL metrics. Other top-performing markets include Phoenix, San Antonio,and Austin which have seen significant inventory-adjusted demand growth driven by population increases.
Despite this positive trend in certain regions,the overall national absorption rate has decreased by forty-five percent compared to last year’s numbers.Costs associated with construction are expectedto continue impacting new development projects,but experts predict minimal supply threats until input costs decrease or rents rise significantly enoughfor developers’ investments pencil out favorably again.
Looking ahead,CBRE analysts anticipate ongoing cost pressuresand interest rates will limit new construction while retailers struggleto find desirable locations.JLL researchers agree,stating that leasing demands will remain challengeddue limited space availability.Despite these challenges,the CRE industry remains optimistic about future opportunitiesin lightof sustained consumer spending trends.However,Cushman & Wakefield predicts moderationsin fundamentals throughoutthe restof thisyearas wellas challenges relatedtoleasingdemand dueto limitedspaceavailability.They addthat itis unlikelyvacancy rates will decrease significantlyeven in a strong economy.
