Retail space availability is at a multi-decade low of just 5%, with limited new deliveries—only 5.9 million square feet in the latest quarter. Although 29.3 million square feet were leased, the demand for prime retail space remains strong, especially in high-demand locations.

Consumer spending continues to drive the sector, with September seeing a 0.4% increase in retail and food services sales. “Miscellaneous stores” and health and personal care stores led growth, while food services also showed a solid 3.7% year-over-year increase.

Retail demand is strongest for open-air spaces, community centers, and freestanding locations like drive-thru restaurants. Malls, lifestyle, and outlet centers, which surged post-pandemic, now have higher availability than before.

Suburban retail spaces are tightening, surpassing urban areas for the first time in over a decade. Investors are increasingly targeting smaller markets, including cities like San Antonio and El Paso, and regions in Idaho, Montana, and Florida.

While investment in multi-tenant properties is slowly recovering, interest in freestanding assets is declining. A significant increase in prime retail centers is expected by 2025, likely spurring investment activity.

Retail prices remain stable, though the gap between high-quality and lower-quality properties continues to widen, with many lower-tier properties being acquired as value-add investments.

High construction costs are discouraging new store openings, enabling landlords to increase rents on new leases. However, overall rent growth has moderated due to an increase in available space at underperforming centers. Despite these challenges, the retail sector’s fundamentals remain strong.

Source:  GlobeSt.