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Q1 Retail: Tight Space and Low Vacancies
Reports detailing the retail sector in Q1 2024 were on the same page. Specifically, the quarter was marked by less space availability, insatiable occupier demand, low vacancies, and increased asking rents. As Lee & Associates’ Q1 2024 Market Report noted: “prolonged merchant demand for space, fewer store closures and bankruptcies and a limited available supply have combined to produce the tightest retail market on record in the United States and Canada, as vacancies reach all-time lows.” Added Cushman & Wakefield’s U.S. National MarketBeat Shopping Center Q1 2024 report (which focuses on data from open-air centers only), “U.S. real estate started the year where it left off in 2023 – with the vacancy rate remaining near historic norms.”
Adding to the issue is that the space being delivered is already spoken for. As a result, “less than a quarter of the space delivered remains available at the end of the quarter, resulting in higher-than-average leasing rates,” stated Colliers’ U.S. Retail Market Statistics 24 Q1 report.
This has prompted leasing activity and absorption to decline “largely because of a frustrating lack of available space in desirable locations,” noted JLL’s United States Retail Market Dynamics report. While there were plenty of closing announcements, the JLL report explained that announced openings were nearly doubled. The reports agreed that much of the demand comes from restaurants (especially quick-service), discount stores and experiential tenants.
While demand is increasing, so are costs. Colliers analysts point out that an increase in build-out expenses is “negating strong re-leasing spreads,” meaning a limit to occupiers’ bottom-line growth.
Cushman analysts agreed, explaining that the increasing costs of retail space, including fit-outs, operations and construction, could make retailers more cautious in the remainder of 2024. Retail fundamentals are forecast to moderate throughout the year as leasing totals continue to be “constrained by limited availability, making lower vacancy rates unlikely and keeping retail rates firm,” the Cushman analysts added.
The JLL experts also call for increased asking rents, though the growth rate will likely slow. While “a significant number of announced restaurant openings,” store closures are also on tap. These include Macy’s closure of 150 stores over the next three years.
- ◦Lease
- ◦Development
