Q3: Record-Low Retail Vacancy and Resilient Consumer Spending

Oct 23

In a surprising turn of events, the third quarter of 2023 has seen the U.S. retail real estate market hitting a historical low in vacancy rates, with consumer spending remaining robust. Here are the key highlights from this significant development:

1. Record-Low Retail Vacancy: The U.S. retail real estate vacancy rate plummeted to an all-time low of 5.4% in Q3 2023. This remarkable achievement is attributed to healthy tenant demand and a resilient consumer spending landscape, defying expectations.

2. Retail's Resilience: While other property types struggle under the weight of high interest rates, the retail sector stands strong. Consumer spending continues to rise, leading to an increase in the number of store openings, outpacing closures. Notably, demographic shifts and changing shopping patterns are facilitating the expansion of service-oriented companies, particularly in Sunbelt suburbs.

3. Limited Retail Supply: Developers are on track to set a record low for retail delivery in 2023. Only 2 million square feet of new retail space was delivered nationally in the first three quarters of the year, reflecting a trend of limited supply. However, retail construction is picking up, with 13.2 million square feet currently underway.

4. Rising Rents: The combination of limited supply and high demand has empowered landlords to raise rents. Average asking rents in Q3 2023 were $23.70 per square foot, marking a 4.5% increase from the previous year. Although rent growth has slightly decelerated in 2023 compared to the peak of 5% from 2021 to 2022, rents remain significantly higher than in 2019, with a 16.7% increase.

5. Long-Term Outlook: Despite potential challenges, experts remain optimistic about the retail sector's long-term prospects. Cushman & Wakefield senior economist James Bohnaker believes that while there may be some softness in the near future, structural forces have positioned the sector well for sustained growth. Even amid a global pandemic and potential recession, the retail industry has proven its resilience.

In conclusion, the U.S. retail market's outstanding performance in Q3 2023 reflects the industry's ability to adapt and thrive in changing economic landscapes. With record-low vacancies, rising rents, and a resilient consumer base, the retail sector is shaping up for a promising future.

*Read more in ICSC's article titled "All-Time-Low Retail Vacancy in Q3, Consumer Spending Remains Surprisingly Strong and More" written by Brannon Boswell on October 19, 2023.