Weekly CRE News Roundup: Brick-and-Mortar Retail, Stabilizing Rents, & Mall Resurgence
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Happy Friday! Welcome to yet another edition of our weekly commercial real estate news roundup, where we walk you through some of the industry's most notable and recent happenings.
Here's last week's edition, in case you missed it, where we discussed the ongoing struggles that San Francisco property owners continue to face, rising construction starts, and who exactly is holding the most commercial real estate debt.
On today's agenda:
- Brick-and-mortar retail establishments are flourishing as shoppers, especially those enjoying hybrid work schedules, continue to shop in person.
- Rents across the country are starting to stabilize thanks to a rise in housing construction and adjustments to post-pandemic life.
- Malls, which have been seemingly dying for decades, aren't going anywhere thanks to omnichannel marketing strategies and Gen Z interest.
Let's get started.
#1 – New Brick-and-Mortar Retail Stores Continue to Open as In-Person Shopping Dominates
The wave of online shopping didn't necessarily pan out as everyone thought it would. According to recent data published by the Wall Street Journal, falling retail store vacancies are proving to be a brightspot in the current market as owners absorb currently available properties. This, coupled with declining retail construction, brings the US retail sector into focus.
Mid-August of 2023 saw the announcement of nearly 4,500 new retail store openings against 3,500 closures. Retail stores located in suburban areas are enjoying especially significant success as weekday shopping visits from remote employees continue to grow.
Lower-tier malls, on the other hand, are still struggling as tenants shift to open-air spaces and department stores continue to contract. A large majority of distressed retail shop sales (nearly $1 billion) this year so far come from malls experiencing these difficulties.
Ultimately, as retail vacancies drop, so has retail investment activity, falling by nearly 48% as of August 2023. Yet, discount retailers spearhead the majority of new retail property sales as consumers seek relief from inflation.
It's clear that the market has adjusted away from the speculation of total eCommerce dominance and towards a hybrid approach that combines both online and in-person shopping.
#2 – Rent Growth Across the Country Starts to Stabilize
Remember when rents were surging and absolutely nothing at all seemed to be able to stop it? While rents grew by about 15% between 2020 and 2022, they're finally starting to stabilize now thanks to an oversupply of multifamily housing and falling renter demand.
Annual rent growths now sit at anywhere between 1% and 3%, a welcomed return to pre-pandemic norms. Hotspot metros, like Austin and Atlanta, that saw astronomical rent increases are now seeing those rents moderate.
Why the slowdown? Housing construction across the country is picking up: As it stands today, approximately 1 million new apartments are under construction in the US. Renter demand also seems to be falling as individuals choose to either stay in familial homes or absorb renewals. The discrepancies between available rental units and prospective renters are starting to widen.
The Sun Belt region, in particular, which saw significant increases in renter demand since the onset of the pandemic as individuals and families sought lower costs of living, is witnessing notable rent stabilization thanks to significant oversupply.
Despite these moderations, the overall cost to rent in major metros and surrounding areas is still well-above pre-pandemic rates. Landlords are exploring lease concessions and rent abatement to ease new renters into their units, but the memory of pre-pandemic affordability still remains just that.
#3 – Malls in the US Show Signs of Resilience Despite Decline
According to recent research from Coresight Research, malls in the US are seeing increasing occupancy rates and larger crowds thanks to new strategies combining omnichannel presences and digital offerings.
Mall sales grew to about $819 billion in 2022 and also saw a 12% increase in foot traffic in 2022 compared to 2019. Top-tier malls in affluent areas saw 5% revenue growth between 2020 and 2022; lower-tier malls saw 9% revenue growth in the same time period.
Many of these malls that were once on the precipice of decline are seeing more investments in combining both the offline and online customer experience. As we discussed in last week's news roundup, retailers are also investing more in their brick-and-mortar presences, a trend that's carried over into mixed-use developments.
Brands with a digitally native presence are placing "pop-up shops" throughout the nation's malls and are working with brick-and-mortar stores to deploy hybrid customer experiences. As such, occupancy rates are rising, and its this rise in occupancy rates that's making malls more attractive to retailers and landlords alike.
What's more is that Gen Z, despite their digital upbringing, visit malls quite frequently, according to recent data. In fact, about 73% of mall shoppers within the last month were Gen Z, a much larger percentage than their Gen X and Y counterparts. Malls are also adopting virtual reality experiences among other recreational activities, features that speak significantly to the core of what Gen Z knows best.
Other Goings-On Around the Industry
Here's some other notable commercial real estate news that popped up this week:
- Aftershocks From Nightingale: Amidst the recent controversy surrounding Nightingale's misappropriation of funds, the crowdfunding platform's competitors are emphasizing their own safeguards.
- Struggling Office Conversions: Hopes for a full return to in-person office work are fading, and major metros are scrambling to figure out how to affordably convert vacant space.
- Another One? Goldman Sachs believes another temporary government shutdown is on the horizon for Q4 2023.
- Cooling Job Market: Businesses are starting to reduce starting salaries for new hires.
- Discount Grocers: Discount grocery store outlets, like ALDI and Dollar General, are seeing significant growth and expansion.
Thanks for reading this week's commercial real estate news roundup! Until next week, do your research, stay diligent, and happy investing.
Other recent articles
Article Search
Share
All Article Categories
