Asking Rents Go Up as Retail Vacancies Decline

A new analysis from the National Association of Realtors research economist Brandon Hardin shows retail vacancies declining, which is putting upward pressure on rents.

Retail vacancies in the first quarter of 2022 have dropped to 4.5%, even lower than the closing rate of 4.7% at the end of 2021.

As Hardin noted, this varies significantly by type of retail. “The lowest vacancy is reserved for general retail (2.7%) while power center and strip center vacancy were relatively close to one another at 5.2% and 5.0%, respectively,” he wrote. “Mall and neighborhood center vacancy, while declining, remain slightly elevated at 8.0% and 6.9%.”

There’s also great variation by geographic region. Decatur, Illinois and Chambersburg-Waynesboro, Pennsylvania saw the highest vacancy rates at 12.8% and 10.7%, respectively. The lowest rates were in the west, including Wenatchee, Washington (0.6%); Billings, Montana (0.9%); Albany, Oregon (0.9%); Dubuque, Iowa (1.0%); and Bellingham, Washington (1.0%).

In major retail metro areas, the rates were 2.6% for Seattle, 4.0% in New York, Atlanta at 4.3%, Dallas with 5.0%, 5.2% in Los Angeles, and Chicago, 5.9%.

The results are in line with what might be expected from other evidence. For example, there has been “significant recovery” in foot traffic and retail sales are expected to top pre-pandemic levels this year.

Lower vacancy rates mean more competition for existing spaces and, so, growing rents. The annual growth between the fourth quarters of 2020 and 2021 was 3.2%, ending at $22.63 per square foot. That figure crept up to $22.90 as of March 17, 2022.

“Positive retail asking rent growth is occurring in 99% of 390 metro areas, according to NAR’s analysis of asking rent data,” the report noted. “Leaders in asking rent growth both exhibit double-digit rates and are occurring in Las Vegas, NV (11.4%) and Jacksonville, FL (11.0%). The majority of positive rent growth inside the top 10 are located in the Sunbelt and in Florida in particular where Florida metros make up 40%.”

Florida—with an influx of people moving from other parts of the country, companies relocating headquarters or establishing new regional offices, and a resumption of tourism—was a major force in retail growth. The state’s metros composed a third of the top 20 markets with positive rent growth, with a half dozen seeing rent growth of at least 6.5%. As of mid-March, out of 24 Florida markets in the NAR analysis, 87% saw 12-month net retail absorption exceed net deliveries.