Retail Remains Resilient

JLL’s third-quarter report on the retail sector showed that vacancy has remained flat and rents are rising, but the growth will likely slow in the coming months.
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The retail market continues to grow despite the major growing pains the industry is experiencing. In JLL’s third-quarter retail report, the sector saw retail sales increase 1.5 percent from the previous quarter. While August and July posted strong numbers, September saw the momentum wind down, which will continue into the coming months.

READ ALSO: What to Expect This Holiday Shopping Season

In the third quarter, net absorption for major U.S. retail markets increased 23.7 percent quarter-over-quarter to 8.4 million square feet, while vacancy remained flat at 4.5 percent. Retail rents have also slightly increased by 1 percent from the previous quarter, but 5.5 percent year-over-year. However, delivery of new retail spots has dropped 4.2 percent quarter-over-quarter.

Looking at the different types of retail, there are clear winners in the fitness and entertainment categories, the report pointed out. The fitness sector of the retail world is experiencing a golden era, with the number of fitness centers growing by 23.5 percent from 2010 to 2019, hitting 111,055 establishments. That number is expected to rise to 120,700 locations by 2024, especially with companies like Planet Fitness, Crunch and Anytime Fitness and their aggressive expansions.

Fitness tenants have also been bolstering certain types of retail, including power centers which finally saw positive net absorption after three negative quarters, and small shopping centers which rose to 3 million square feet in net absorption.

With the shift in what consumers want from retail, entertainment has also slotted into the void smoothly. From 2010 to 2019, entertainment tenants saw a 44.7 percent increase in space occupied in malls to 45.2 million square feet and a 68.5 percent increase in shopping centers, to 129.7 million square feet. The report added that entertainment in retail will continue to grow as they become a more important part of shopping centers.

Looking forward

Overall, many of the major U.S. retail markets like New York City and Los Angeles are in what JLL deems the falling phase, or the stage of decline before bottoming out. But entering the holiday season, JLL expects the sales boost to be as high as 5 percent, as detailed in their 2019 retail holiday survey. That report also noted that 68.7 percent of shoppers will end up in a physical store, whether the sale actually begins in-store or from online as an in-store pickup.

And the future for retail spaces remains promising, with nearly 400 million square feet of planned retail in progress, according to the report. Currently, there are more than 76.4 million square feet of retail under construction in the U.S., 25.7 of which is Class A, 63.5 is Class B and 3.7 percent is designated as Class C. The robust pipeline includes more than 391 million square feet of retail, 55 percent of which is expected to be delivered by the end of 2020.