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Q2 Retail: Supply Lack Drives Lower Absorption, Higher Rents
The once-beleaguered retail sector continued to show resilience during Q2 2023. According to Colliers’ U.S. Retail Market Statistics, Second Quarter – 2023, retail performed admirably during the first half of the year “thanks to gains in consumer spending driven by cooling inflation.”
This, in turn, led to ongoing demand for retail space, along with historically low construction and deliveries. The impact? Low net absorption levels – the lowest since the middle of the pandemic. JLL’s United States Retail Outlook: Q2 2023 summed it up by saying, “There is now less space available for lease in shopping malls than at any other time before the Great Recession of 2008.”
Lee & Associates’ Q2 2023 Retail Overview also noted that “fundamentals are so tight, the sector’s biggest challenge lately is satisfying pent-up demand.” All of this continues to push asking rents at a fast clip.
The Colliers analysts pointed out that much of the space delivered “consists of build-to-suits or smaller freestanding properties, with nearly 80% of new retail space delivered over the past year leased before delivery.”
CBRE’s U.S. Retail Figures, Q2 2023, noted that the driving force behind the (lack of) construction completions continues to be “elevated construction costs and economic concerns.” Nor is that likely to change anytime soon. The Cushman & Wakefield MarketBeat U.S. National Shopping Center Q2 2023 report noted that the low amount of delivered space in the first half of 2023 means “another low-water-mark this year.”
The forecast calls for muted development and deliveries, especially “as the market contends with economic uncertainty and elevated construction materials costs,” CBRE analysts pointed out. However, Cushman & Wakefield researchers indicated that “slower consumer spending and tighter financial conditions” will likely lead to a halt in large-scale plans while leading to “footprint consolidation for troubled brands.”
Still, despite anticipated headwinds, “the retail market has enough offsetting positives to weather an economic cycle much more gracefully than it has in the past,” noted the Cushman & Wakefield analysts.
- ◦Lease
- ◦Development
- ◦Economy
