Wall Street Journal Retail CRE Update & Analysis

 WSJ - Some bright news for Retail CRE according to the WSJ

For Retailers, Business Is Back and Landlords Say No More Rent Discounts - WSJ

Some key points below. 

1) Retail property owners are shedding the discounts and other concessions they offered struggling tenants during the depths of the pandemic, the latest sign that competition for retail real estate is intensifying.

2) Now, landlords are having a much easier time filling prime retail space and are far less likely to agree to these concessions, said Ed Coury, senior managing director at retail-brokerage firm RCS Real Estate Advisors.

3) Landlords’ increasing leverage is another sign of retail real estate’s recent strength. Store openings outpaced closures for the second straight year in 2023 after years of net closures, according to research firm Coresight Research.

4) Consumer spending remained resilient last year despite high inflation and recession concerns, and Americans’ views on the economy are improving at the start of 2024. This, coupled with scant new construction of retail real estate, leaves landlords optimistic that retailers will be vying for limited available space for the foreseeable future. 

5) Vacancies at U.S. shopping centers fell to 5.3% in the fourth quarter, the lowest level since real-estate firm Cushman & Wakefield began tracking the metric in 2007. Average asking rents rose to $23.70 a square foot and are now nearly 17% above 2019 levels.

6) Retail’s strong position stands in contrast to the office sector, where owners are grappling with oversupply and a drop in demand because of remote work.

7) Percentage-of-sales agreements proliferated in 2020 as landlords sought to keep restaurants and other retailers from going out of business.

8) Retail landlords’ negotiating power isn’t absolute. Older, tired properties still have to offer concessions and accept lower rents to attract tenants, Coury said. Most landlords are still spending to renovate or build-out retail spaces for new tenants, and these costs have escalated along with construction prices. 

Weitz Commercial take: I'm not sure I'm totally buying this; it feels like they interviewed a lot of retail owners and it may be more of a 'puff piece'. A 5.3% vacancy rate isn't exactly ideal. For now, I'll say this is good news for the industry, but will refrain from getting the 'pom-poms' out until and if it continues further into 2024. I believe the consumer is stretched pretty thin given inflation, and that layoffs are a bigger issue than the published figures would lead you to believe at that moment. That said, Kimco Realty just posted a positive Q4 as well and they focus on Retail so perhaps there is some light at the end of the tunnel. Certainly, existing complexes will / may have an advantage as building is a challenge with construction costs and borrowing costs at the moment. 

For more information on Snohomish County Commercial Real Estate, consider contacting a Snohomish County Commercial Real Estate Broker. 

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