Here's Where Retail Rents Are the Strongest

Metro areas across the Midwest, Southwest, and Southeast are leading a recent uptick in retail asking rents, with national figures hovering 2.7% above where they were a year ago and strip centers standing out as the highest year-over-year increase at 3.4%. 

New research from the National Association of Realtors shows that cities like Akron, Las Vegas, Tulsa, Salt Lake City, Ft. Lauderdale, Atlanta, Nashville, Tampa, and Cincinnati showed the strongest year-over-year rent gains. Meanwhile, San Francisco, New Haven, and St. Louis all showed negative changes in asking rents compared to 2020 levels. 

Net absorption of retail space last quarter totaled 30.2 million square feet (msf) and hit the highest level since Q4 2017. Nearly all of the gains in net absorption were driven by strong demand for general retail and neighborhood space, according to NAR.

Vacancy declined by 10 basis points to 4.7% as of December 9, while new retail supply hit a new low in Q3 2021 of 2.9 msf. Most of the new retail space under construction is focused on general retail.

“Malls remain the stubborn retail asset and despite foot traffic returning, it remains vulnerable to problems a potential increase in COVID infections from cold weather would cause,” the report notes, adding that “net absorption, which had been improving as of Q3 2021, is reversing.”

However, some experts believe mall operating fundamentals will recover more quickly than previously predicted, thanks in part to tenant sales that are better than expected. A recent analysis from Green Street notes that brick and mortar retail sales remained solid last quarter and were up 17% over Q3 2019 levels. Meanwhile, e-commerce sales decreased for the first time this year, down 3% over Q2 2021. Apparel stores⁠—the most significant retailer type for malls⁠—have mostly caught up to other categories, according to Green Street.

Power centers, anchored by tenants like home improvement stores, discount departments, and warehouse clubs, are showing promising returns to pre-pandemic leasing levels. Currently, there are 56 power centers under construction totaling 1.3 msf, the NAR report states.