Retail Market Webinar: US Store Vacancies Fall to Lowest Point in More Than a Dozen Years

Article originally posted on CoStar on March 13, 2019

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U.S. retail real estate is bursting at the seams.

The national retail vacancy rate fell to 4.4 percent, its lowest level in more than a dozen years, in the final quarter of 2018, according to a CoStar analysis. That happened even as retailers leased space in U.S. malls at the slowest pace since the Great Recession.

It’s the latest sign that big-box store closings haven’t battered the industry’s overall real estate occupancy. But those closings have widened the divide between struggling and thriving retail centers.

While online shopping and the closing of Sears and other big-box stores cut space demand at major malls and big shopping centers, smaller, well-located strip shopping centers anchored by necessity-based retailers such as groceries generally are having no problem keeping spaces filled. They’re getting help from strong consumer demand and a lack of new construction in the past couple of years, the analysts said.

“The performance gap between well-located and lower-quality retail is widening, while record retailer closing numbers and major acquisitions spell another round of industry consolidation,” said Drew Myers, a Boston-based senior consultant in CoStar’s analytics advisory service.

Galina Alexeenko, managing director of analytics and senior economist in CoStar’s Atlanta office, said consumer spending should grow “at a solid pace” in the near future, fueled by personal income growth, consumer confidence, positive household balance sheets and access to credit.

CoStar analysts expect retail vacancies to stay tight well into this year and beyond, as construction remains sparse compared to overall current inventory in most major U.S. cities. Myers noted that retail projects nationwide under construction “amount to less than 1 percent of stock, below all other major property types on a percentage basis.”

Retail property sales reached $170 billion last year, the highest annual level recorded by CoStar, though Alexeenko notes that was spurred by a big trend in the past year: consolidation. For instance, Brookfield acquired General Growth Properties’ 125-center portfolio for $15 billion; and Unibail-Rodamco purchased Westfield Group’s U.S. portfolio for $15.7 billion.

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