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Downtown District Retail: All Isn’t Lost
The ongoing trend of remote work has been leading to more than vacant office space, especially in downtown locations. According to a report from CBRE Economics Advisor, the retail availability rate in U.S. downtown markets was 88 basis points higher than the suburban rate in Q3 2024, “the largest spread since CBRE EA began collecting retail data in the early 2000s.”
However, as is the case with commercial real estate, generalization is a bad idea. In conducting a hexagon analysis of downtown retail performance in 19 cities, CBRE EA noted the following:
Retail performed the best when co-existing with prime/trophy office buildings. Known as “Prime Business” districts, these areas “showed the strongest rent growth relative to their overall market,” CBRE EA said. Furthermore, the Prime Districts performed better than the “Vibrant Mixed-Use District.” This was “mainly due to rent levels in Vibrant Mixed-Use Districts already being so high, sporting a 74% premium to the Prime Business Districts,” according to CBRE EA.
“Non-Prime Business Districts” also outperformed their market average. With no prime office space, these districts did well because of limited space availability. Furthermore, “many such districts are located adjacent to suburban office parks, which means they benefit from consumers’ newfound tendency to spend more money closer to home,” CBRE EA said.
Considering these metrics, the CBRE EA experts suggested that retail, especially in downtown districts, deserves consideration. “Retail that’s positioned proximate to prime offices may deserve a look, especially now that office fundamentals appear to be turning a corner,” they added.
- ◦Lease
