In the fifth and final installment of a series featuring experts in the retail sector, Connect CRE shares their outlook on the industry and commentary from ICSC. The previous 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 now available.
According to recently released gross domestic product estimates , consumer spending remains strong despite inflationary pressures. This is one of several factors contributing to a bullish outlook for retail shared by experts interviewed by Connect CRE. Other key indicators also demonstrate that retail has rebounded from its pandemic struggles in 2020-2021.
Chris Wilson, Executive Vice President at JLL and National Agency Retail Lead stated that overall sentiment towards retail is extremely positive unless there is an unexpected downturn in consumer spending. He predicts significant growth in development projects as well as acquisitions over the next two years.
One major challenge facing retailers currently is limited space availability. Cushman & Wakefield’s Q2 2024 U.S National Shopping Center Report revealed a vacancy rate of just 5.3%, with only 11 million square feet under construction nationwide.This scarcity will continue to keep occupancy rates tight according to Rhiana Lindsey Principal at Primestor who noted that this trend has been ongoing for over ten years.Melissa McDonald Principal at The Providence Group added that current economic conditions do not justify new construction which explains why many properties within Phillips Edison’s portfolio have waitlists for tenants seeking space.In contrast retailers remain committed expanding into suburban areas closer consumers according Robert Myers President of Phillips Edison .
Experts also discussed how different types of retails perform differently.Coreland Companies’ Matthew Hammond explained necessity-based stores such as grocery outlets will continue thrive regardless economic climate because people always need essentials like food or personal care services.Hammond added investors appreciate these types of tenants because they provide a diverse mix offerings that appeal to consumers.
However, not all shopping centers are expected to perform equally well. Hammond noted that “A” grade properties with prime locations and experiential retail will likely outperform “B” and”C” class centers which may struggle in the current market environment.
In addition to grocery stores, quick-service restaurants, health and beauty retailers,and medical facilities are also expected thrive due their convenience affordability according Myers who added these businesses offer easily accessible options for busy consumers looking for convenience at every turn.
The evolution of the retail sector was another important topic discussed by experts. McDonald stated this shift has been ongoing even before the pandemic as consumer preferences continue change over time.She added those involved in commercial real estate have experienced economic downturns before so they tend be resilient when faced with challenges like supply shortages or higher operating costs.Darrell Palasciano Broker at Providence Group agreed noting while there is always some fluctuation in consumer spending he believes industry can weather potential issues if there is a soft landing instead serious recession .
Experts also shared insights from ICSC’s May 2024 conference held Las Vegas.Hammond found discussions on approvals particularly interesting especially regarding zoning requirements ADA compliance permits buildouts required some tenants.He noted negotiations between landlords and tenants can be challenging as both parties try push risk onto other party.Wilson McDonald said two major topics were interest rate speculation limited space availability.Additionally attendees questioned whether it would feasible develop new retail projects next three four years given uncertainty construction costs.McDonald observed many retailers already planning future growth up until 2027.Myers’ main takeaway from ICSC was how actively retailers seeking new locations planning ahead.Palasciano remarked this year first time he saw more retailers approaching owners than other way around adding it refreshing change pace.However despite strong demand available space remains scarce leaving owners wishing had more vacancies lease prospective clients .
