USA National Retail Market Report as of October 1, 2023

[Manuel Angeles]

Greetings,

Here is an update on the current National Commercial Retail Real Estate Market in The United States of America:

Despite longstanding concerns of a softening economy and eventual pullback in consumer spending, U.S. retail space markets remained resilient in the first half of 2023 thanks to steady demand from a diverse array of sectors, a still below-average pace of store closures, and minimal new supply.

Overall, demand for space grew by nearly 12 million SF during 23Q2, marking the ninth consecutive quarter of growth for retail space markets. Growing demand and still limited new supply additions have kept the U.S. retail space market at its tightest level on record, with just 4.8% of all retail space available for lease as of the end of 23Q2. Retail availability contracted by 50 basis points over the past year and is 200 basis points below its historical average of 6.8%. With available space hovering at such low levels, many tenants are reporting having difficulty finding spaces in target locations, especially those looking for mid-sized boxes and outparcels in primary corridors of higher growth Sun Belt markets.

The lack of available retail space in desirable locations is a factor contributing to the recent pullback in leasing activity. Retail tenants signed for approximately 56 million SF of space in 23Q2, which is the lowest level recorded since 20Q2. While this figure will rise as additional deals signed near the end of the quarter are discovered, leasing activity has cooled noticeably over the past year, with trailing four-quarter leasing activity falling to 241 million SF, its lowest level since 2020 and nearly 20% below the average recorded during the five-year period preceding the pandemic (2015-2019).

Other factors contributing to the pullback in leasing activity include a more-challenging operating environment, a lack of available labor, and a rise in uncertainty surrounding the outlook for consumption. Despite slowing leasing activity, the growth in demand for retail space outpaced net deliveries for the ninth consecutive quarter in 23Q2.

While demand for space continues to rise, new retail development activity remains minimal. Just under 50 million SF of new retail space delivered across the U.S. over the past year, a level which is more than 35% below the prior 10-year average. With over three-quarters of new development having a tenant in-place at delivery, the U.S. retail market has faced virtually no threat from new supply, as developers and banks continue to shy away from large speculative retail projects.

The vast majority of retail construction activity consists of single-tenant build-to-suits or smaller ground-floor spaces in mixed-use developments. In addition, given strong demand for housing and other uses, an active pace of demolitions continue to remove obsolete space from the market. Over 145 million square feet of space has been demolished over the past five years, the vast majority of which is attached to or within underperforming malls.

While moderating from the multi-decade high pace seen near the end of 2022, retail asking rents continue to rise at a healthy clip thanks to minimal availability and the significant boost in retail sales coming out of the pandemic. Asking rents for retail spaces have increased by 3.5% over the past year to a new record high of $24.00/SF.

Here are several graphs illustrating the current national commercial retail market in The United States of America:

Here is the full USA retail market report for you to review: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/1170833/United_States-Retail-National-2023-10-02_compressed.pdf

Data includes: Sale price per unit distribution, cap rate distribution, cumulative sales volume by year, months to sale, recent significant sales, vacancy rates, market rent per square foot, construction deliveries/demolitions, economy, job growth. population growth, and Los Angeles county sub-market activity.