‘Stagnant’ Retail Space Demand, But Investors Have Not Given Up

The U.S. retail market is flat as shifts in consumer spending result in a high and stagnant retail vacancy rate, said Ten-X, Irvine, Calif.

Retail vacancy rates have remained above 10 percent since 2018 and are projected to remain close to that level into 2022, Ten-X said. “High retail vacancy rates are a result of reduced demand for space owing to store closures in the face of e-retail competition and the need for smaller store footprints,” the Ten-X Spring 2019 U.S. Retail Market Outlook said, noting effective rent growth has also stalled.

But despite continued weakness in the overall retail sector, investor sentiment increased from last year, Ten-X Chief Economist Peter Muoio said. “Given the trend toward retail repositioning and development, investor activity in the sector could remain strong even as fundamentals struggle,” he said.

Muoio said many retail property buyers appear to be looking for redevelopment and repositioning investments. For example, one retail real estate investment trust purchased 235 closed Sears stores in 2015 to convert the vacant spaces into offices, apartments and restaurants. And the Ten-X platform has seen average retail listing visits increase by nearly 25 percent from a year ago.

In addition, “some areas of the retail market are holding up better than other, as retail deal volume has increased in the south and southwest metros,” Muoio said.

Austin, Dallas and San Antonio, Texas and Salt Lake City, Utah are among the top ‘buy’ markets at the moment due to recent rent gains and lower vacancy rates, Ten-X reported. “Overall, the Southwest region exhibits better buyer demographics and stronger economies, which provide a boost to traditional retail,” the report said.

Meanwhile, Milwaukee, Wis. Pittsburgh, Pa., northern New Jersey, Philadelphia and Memphis, Tenn. rank as top markets where investors might look to sell their assets, the report said. “These cities have seen weak rents and higher vacancy rates and will likely struggle through 2022,” Ten-X said.