This is the fifth and final article in a series of five, where experts share their insights on the retail sector and ICSC commentary with Connect CRE. The other articles in this series include “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.” All of these articles are now live.
According to recently released gross domestic product estimates, consumer spending remains strong despite inflationary pressures. This is one reason why experts in the retail space remain optimistic about its outlook. Other factors also indicate that retail has bounced back from its pandemic lows in 2020-2021.
Chris Wilson , Executive Vice President at JLL and National Agency Retail Lead believes that overall prospects for the retail sector are extremely positive as long as there isn’t a consumer recession. He predicts an explosion of activity related to development projects or acquisitions over next two years.
One major issue facing retailers today is scarcity of available space. According to Cushman & Wakefield’s Q2 2024 U.S National Shopping Center Report , vacancy rates stand at just 5.3%, with only 11 million square feet under construction nationwide.This lack of new supply will keep availability tight according to industry analysts.
Robert Myers , president Phillips Edison notes that shortage has been ongoing for nearly ten years now because current economic returns do not justify new construction costs.He adds that many properties within his company’s portfolio have waiting lists for tenants seeking space.However,on track expansion plans by retailers continue unabated.”They’re continuing growth by opening more locations closer suburban centers which appeal more closely consumers”, says Myers .
Experts point out differences between various types shopping centers too.Necessity-based stores such as grocery outlets perform well regardless economic climate,says Matthew Hammond Principal Coreland Companies .He adds ,”No matter what the economic climate,people need to buy groceries and get their nails and hair done.” Another factor that makes grocery-anchored centers attractive is tenant mix. Investors prefer a diverse range of tenants in these properties.
However, not all shopping centers will perform equally well during this outlook period.Hammond explains that “A” grade shopping centers which are strategically located with experiential retail offerings should thrive while “B” and”C” grade properties may struggle.
Myers predicts quick-service restaurants ,health & beauty outlets as well as medical retail stores will do good business because they offer affordable options for consumers looking convenience at every turn.
The sector has undergone significant changes over time.Melissa McDonald Principal The Providence Group notes,”Retail commercial real estate generally does not attract people who are not resilient or positive in their long-term approach”.She adds ,”Those involved have experienced recessions other fluctuations before.”
Rhiana Lindsey Director Leasing Primestor says retailers must provide right customer experiences to succeed.She adds,”As retailers increase use technology,this drives loyalty operational efficiency”.
Darrell Palasciano Broker The Providence Group believes Federal Reserve’s actions could further improve prospects for the sector.At its late July 2024 Federal Open Market Committee (FOMC) meeting,the Fed decided keep Effective Federal Funds Rate(EFFR) at 5.3%,where it has been since July 2023.Fed Chair Jerome Powell hinted there might be an interest rate cut September next year.While a single interest rate cut won’t lead sudden massive increase transactions development,Wilson believes it could generate greater activity.Adds McDonald:”We’re hoping there is shift interest rates environment which would obviously impact new development.”
Meanwhile,retail seems positioned weather potential economic issues unless faced by lengthy serious recession.Darrell Palasciano observes,”There always ripples consumer spending but we’re probably positioned absorb soft landing even if hit again”.
Experts also shared insights from May ICSC conference in Las Vegas.Hammond found discussions on approvals interesting especially for tenants like restaurants,medical-retail entertainment.”These deals require many levels approval including zoning,ADA permits”,he says.Buildouts are also required some of these tenants which prolongs approval process.Negotiations can be challenging as both landlords and tenants try shift risk other party.
Wilson McDonald say two most significant topics discussed were interest rate speculation lack available space.McDonald adds,”Also asked was viability developing new retail next three four years uncertainty with construction costs.”
Myers’ takeaway from ICSC was that retailers continue open new locations planning future growth.In some cases they’re planning into 2027.He adds,”The message vibe this year seems to be that retailers chasing developers owners space”.Palasciano notes this is the first time he saw more retailers reaching out meet owners than other way around. “That’s a nice change pace,I just wish I had more space lease them”,he concludes.
