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The Retail Space Squeeze

In a surprising twist, the retail market is feeling the squeeze – not from skinny jeans or tight-fitting shoes, but from a significant space crunch. Quality shopping centers are grappling with historically low vacancy rates, reminiscent of the early 2000s. Let’s dive into the details:

Strong Absorption Signals Rebound

During the second quarter of 2024, the retail vacancy rate plummeted to a mere 5.3%, the lowest in two decades. The rebound was impressive, considering the negative first quarter. A net absorption of 1.4 million square feet of retail space fueled this turnaround. Despite cautious consumer spending (thanks to savings and credit reliance), real personal consumption saw a 2.4% year-over-year increase, with disposable income rising by 1.1%.

Consumer Shifts and Discount Stores

The Cushman & Wakefield report sheds light on intriguing consumer trends. Record-high credit card usage and rising delinquencies are on the radar, while the personal saving rate hovers around 3.7% (half of its 2019 level). While not an immediate cause for alarm, these shifts could impact spending patterns. Notably, discount stores are emerging as stars, accounting for nearly one-third of new retail openings this year.

Decline in Retail Space Demand

Hold onto your shopping bags – demand for retail space has nosedived. The first half of 2024 witnessed a staggering 91% drop compared to the same period in 2023. Absorption figures, which peaked at 39 million square feet in 2022, dwindled to 18.9 million in 2023 and a paltry 834,000 square feet year-to-date. Brace yourselves; this could be the weakest absorption year since 2020.

Regional Trends: South vs. West

The South leads the nation in retail space absorption, with stars like Dallas/Fort Worth, Austin, Jacksonville, and Fort Myers contributing significantly. Meanwhile, the West faces a retail headwind – negative absorption for the second consecutive quarter. Less than 50% of its markets show positive demand.

Zooming In on Retail Construction

Picture this: retail construction is at an all-time low. In 2023, a mere 9.8 million square feet of retail space was under construction – a mere 0.2% of the existing inventory. Compare that to the golden years (2015-2019), when construction accounted for 0.6% to 0.9%. Currently, only 11.3 million square feet are in the works, and supply constraints are here to stay.

The Takeaway

Rents and operational costs are on the rise, potentially curbing expansion plans and leading to more store closures. While open-air shopping centers remain a focus, top-tier malls may pivot toward retenanting and capital improvements. Older malls? They’re contemplating redevelopment. So, next time you shop, remember – behind those shiny storefronts lies a fascinating retail space saga! 🛒🏬

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Disclaimer: The views expressed in this blog post are based on available data and market trends. Individual shopping experiences may vary. 😄