By Ben Haverty, Vice President, Colliers Furniture Estate Retail Group
Inflation is currently driving most of the retail growth, with overall sales up 8.9% year-on-year in June as consumers begin to scale back their discretionary purchases.
At the end of the second quarter, consumers began to buy fewer products but pay more for them, as they increasingly turn to credit cards and savings to meet essential expenses. There is also a shift in what people are spending away from big-ticket items, with much of the growth being driven by essentials where consumers have no choice but to accept higher costs. Over the past three months, gas spending has accounted for 12.8% of the average household’s retail spending.
General retail and neighborhood centers benefited from strong growth in demand from restaurants, grocers, discounters and big-box retailers, resulting in the absorption of 19 million square feet of space in the second trimester. Retailers signed nearly 19,000 individual leases covering 64.3 million square feet, and leasing activity continues to improve as retailers open more stores, with growth driven by demand for space smaller.
The national retail vacancy rate fell 10 basis points in the second quarter to 4.4%.
4.3 million square feet of new retail space was delivered in the second quarter of 2022, with an additional 59.6 million square feet currently under construction. Over the past year, over 75% of delivered space has been leased pre-delivery to domestic tenants, with the majority of this space made up of bespoke builds and smaller detached properties.
Retail development should continue in the actively growing metros; however, these metros are experiencing measured increases in new supply, with no US market seeing even a 1% increase in new supply over the past year.
Landlords have reported greater pricing power, while positive momentum in REIT rental spreads signals that further growth is likely on the horizon. Average retail asking rents reached $23.27 per square foot in the second quarter, up 1.6% from the quarter.
Although nominal growth has been strong, the real growth rate of rents over the past year has been -2%, as rent growth has not kept up with inflation since the start of the pandemic. Retail landlords in strong locations will likely be able to beat inflation as leases roll in, and tighter economic fundamentals are expected to push rents higher through the second half of the year. .
With over 35 years of industry experience, Ben Haverty and the Colliers Furniture Real Estate Service Group are real estate consultants to furniture retailers and wholesalers.
