Slow But Steady Retail Sector Growth

The retail sector is “shrugging off” bad news and slowly growing, reported Reis, New York.

“Similar to its sibling property types, the retail sector continued to shrug off bad news in the broader sector [in the third quarter],” said Reis Senior Economist Barbara Byrne Denham. She noted the retail sector’s vacancy rate declined to 10.1 percent from 10.2 percent in the second quarter and 10.2 percent in third-quarter 2018. Asking and effective rent growth equaled 0.3 percent in the quarter.

Byrne Denham noted fast-fashion retailer Forever 21 declared Chapter 11 bankruptcy in September and could close 178 U.S. stores. “[But] the retail sector has withstood numerous store closings, this latest one should not deliver a big blow,” she said. “Retail spending remains healthy as consumer spending keeps climbing in step with job growth. In short, the retail sector is poised to continue to grow at the current slow but steady rate.”

At $21.45 per square foot (asking) and $18.79 per square foot (effective), average retail rents have increased 1.5 percent and 1.6 percent, respectively, from a year ago, the Reis Retail Sector Preliminary Trends report said.

The gap between strong and weaker metros widened during the third quarter as 30 metros saw higher vacancy brought on by negative net absorption, Reis reported. Metros with the highest vacancy rate increase include Long Island, N.Y., Tucson, Ariz., Charleston, S.C., Baltimore and Syracuse, N.Y. Metros with significant retail vacancy declines included Ventura County, Calif., Louisville, Ken., New Haven, Conn., northern Virginia and Tampa-St. Petersburg.

At $34.86 per square foot, San Francisco has the highest effective rent, followed closely by San Jose at $33.24, Reis reported. Metros with the highest effective rent growth for the year include Nashville (3.8 percent), Raleigh-Durham (3.0 percent), Houston (2.9 percent) and Orlando. Markets with the sharpest declines include Fairfield County, Conn., (-0.7 percent) and Cleveland (0.4 percent).

“Both new completions and net absorption decelerated in the third quarter as fewer developers build traditional neighborhood and community shopping center space,” Byrne Denham said. “Still, tenants are leasing stores in what is getting built as shoppers prefer the new over the old in any market.”