CBRE: Retail Market Faces Space Shortage
(Image courtesy of CBRE; Breakout image courtesy of Markus Spiske/pexels.com)
The United States is under-retailed by 200 million square feet amid rising consumer demand, CBRE, Dallas, found in a recent analysis.
That’s equivalent to about 5% of current stock.
“From the 1980s to the 2000s, the U.S. developed more retail space than was necessary, but development has sharply declined over the past 15 years. With ongoing population growth in many markets, this has resulted in a significant undersupply of retail space today,” said James Breeze, Vice President of Global Retail Research for CBRE. “The retail sector is challenged not only by a shortfall in new development but also a need for new formats that complement online shopping and accommodate product returns and the shopping preferences of younger generations.”
Annual retail construction completions in 2021-2023 were down by more than 80% from the mid-2000s.
The retail availability across the U.S. averages around 4.7%–the lowest rate going back to 2005 when CBRE began measuring the metric.
Some markets are tighter than others, however. Cities with robust recent population growth—such as Austin, Texas, Orlando, Fla., and Nashville, Tenn., have availability as low as 2-3%.
However, larger urban centers such as New York, Los Angeles and Chicago have rates of 5.5% to 8.5%.
The report also highlighted additional themes and takeaways, including that mixed-use neighborhoods are thriving. Vibrant mixed-use districts command retail rents 74% higher than those in prime business districts and 110% higher than in non-prime business districts.
CBRE pinpointed a potential resurgence in consumer interest in urban shopping areas. High street retail rents have increased at a compound annual growth rate of 3% from Q2 2019 to Q2 2024, above the broader retail market’s growth of 2.1%. High street retail were among the most negatively affected during the pandemic.
Consumer spending is projected to grow next year, driven in large part by millennials and Gen Z, CBRE said. Younger shoppers also show a strong preference for in-store shopping experiences, with 60% of Gen Z and 53% of millennials visiting shopping malls in the past three months. That compares with 48% of Gen X and 43% of Baby Boomers.
Young shoppers are also particularly interested in grabbing a meal or drink while on a retail trip—with 33% of Gen Z and 30% of millennials reporting that they consider it an important part of their outing.
However, plenty of brick-and-mortar retail remains vulnerable to e-commerce competition. CBRE pointed to bookstores, office supply stores and department stores as the most vulnerable.
Other categories, such as food service, lawn and garden retail, grocery stores and warehouse clubs see nearly no negative impact from e-commerce.
