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Retail Real Estate: Solid in Q2

In the midst of economic and market volatility, retail real estate held its own during Q2 2022. Commercial real estate analysts all indicted that inflation is impacting consumer spending, while less supply under development and delivery are supporting single-digit vacancy rates.

According to a report issued by Colliers, retail sales increased by 8.9% in June, even as consumers started cutting back on discretionary purchases. Consumers bought less but paid more and “increasingly turned to credit cards and savings to support essential expenditures,” according to Colliers’ U.S. Retail Market Statistics.

Cushman & Wakefield’s U.S. National Shopping Center Q2 2022 MarketBeat said that foot traffic in June “flirted with normal levels comparable to those seen in 2019.” In its Q2 2022 report, CBRE also noted a rebound in retail sales for June but pointed out that “total retail sales growth of 3.8% in Q2 was well below the five-year quarterly average of 7.0%–a sign that falling consumer sentiment is beginning to affect retail sales.”

Given the highly diverse nature of the retail sector, not all types did well. Malls continued suffering from a decline in net absorption. Cushman & Wakefield researchers said that “medical, entertainment and dining options are seeing a resurgence” due to consumer demand for services as the pandemic’s impact dwindles. Furthermore, “retailers who were forced to innovate aggressively during the last couple of years are now better off for it, opening the door to build on recent success with further expansion,” the Cushman analysts said.

From Colliers’ point of view, general retail and neighborhood centers “benefited from the strong growth in demand from restaurants, grocers, discounters, and big-box retailers” while CBRE analysts noted that the “neighborhood, community and strip center segment format has seen the biggest reduction in availability . . .”

All three brokerages anticipate that inflation will spur rent growth as landlords account for increases in their own operating costs, with Cushman & Wakefield adding that the current environment “is more likely to result in choppier growth across sectors rather than a broad-based downturn.”

Colliers indicated that, while retail development in “actively growing metros” will continue, the pace is measured, with low supply deliveries and “no U.S. market having recorded even a 1% increase in new supply over the past year.”


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