As Consumer Spending Increases, Investor Renew Interest in Retail

Consumer spending on retail is on the rebound, eclipsing pre-COVID levels—and investors are taking notice.

JLL, Chicago, said as consumer spending increases, investor confidence – and demand – is following, evidenced by a bounce-back in retail real estate transaction volumes.

“Consumer shopping patterns have bounced back due to pent-up demand over the past 12 months,” said Senior Managing Director Danny Finkle, JLL’s retail co-leader in capital markets. “People are spending money across the spectrum of retail locations. This increased spending goes hand-in-hand with investor sentiment, so, as consumers spend more on food and beverage, apparel and other non-essentials and spend time in malls, departments stores and lifestyle centers, capital will follow.”

Finkle said retail, especially non-essentials goods and services, was one of the hardest hit sectors early on during the pandemic, but with an increase in vaccinations and easing restrictions, those property sectors impacted the deepest in 2020 are experiencing increased investor favor and returning to pre-pandemic levels. For retail, that means capturing an 11 percent share of transaction volume year-to-date in 2021, approximately where it was prior to the 2020 lockdowns.

JLL said while grocery-anchored retail continues to dominate investment sales with the lowest levels of vacancy, the total U.S. retail transaction volume has topped $10.7 billion for assets over $5 million year-to-date through May, and community and neighborhood centers have the highest trade volume of that total.

Chris Angelone, JLL Senior Managing Director and retail co-leader in capital markets, said even with the popularity and insultation of the sub-sector, all retail segments, including malls and power centers, stand to benefit from investor demand returning to retail.

“Investors are gaining confidence and they are going out on the risk spectrum to look for additional yield, which means branching out to other retail product types,” Angelone said. “Other categories of retail are performing well, as retailers’ balance sheets are healthier than they were pre-pandemic.”

JLL said along with release of unprecedented pent-up demand, sooner-than-anticipated re-openings have eased investor concerns over the long-term health of both retail tenants and the retail property sector at-large. This increased confidence is also demonstrated in the uptick in investor demand occurring in most markets across the country.

“We have seen increased investor demand in not only major markets but also secondary markets for quality essential assets, as well as value-add offerings,” said Barry Brown, JLL Senior Managing Director and retail co-leader in capital markets. “This interest level in retail has expanded from primarily grocery in 2020 and now includes larger-format retail power centers.”   

The Census Bureau’s advance monthly retail trade reported strong and retail foot traffic seeing steady gains in May—a 28.1 percent increase year-over-year. Additionally, the apparel category saw its sales jump 200.3 percent from May 2020, while the food and beverage segment saw a 70.6 percent increase from last year. Overall, the year-over-year comparison shows a robust rebound in May.

“Retailers are beginning to feel a sense of relief just in time for summer activities,” said Naveen Jaggi, JLL President of Americas Retail. “We can expect consumer confidence to continue to make gains as more people return to the office, socialize, shop and eat at their favorite local restaurants.”

The National Retail Federation predicts retail sales will grow between 10.5 and 13.5 percent in 2021, which will continue to positively impact commercial real estate and that includes that U.S. retail debt market, which remains liquid.

“As the fundamentals in the retail space have improved, lender demand for high-quality assets has also returned,” said Chris Drew, JLL Senior Managing Director, retail financing specialist and co-head of JLL Capital Markets’ Miami office. “We are witnessing a material increase in the number of institutional-quality lenders that are competing to make loans for this asset class and believe that this trend will only continue as the economy continues its historic rebound.”