From the Great Recession of a decade ago to current worries over inflation, the commercial real estate sector has undergone its share of tough times, but there is good news despite these concerns. Colliers' new fall US Retail Report finds retail sales increased in July 2022 – posting an 8.6% increase over the same period last year, trailing with August 2022 sales increase of 0.3%– and GlobeSt.com spoke with Anjee Solanki, the CRE company's national director of retail services and practice groups, to learn more about these latest retail insights.
"Having registered the strongest performance year-over-year of any property type, retail has shown growth over the past 12 months, whereas other asset classes have not," said Solanki, noting that despite persistent pressure on deals investors remain active. "They are still able to find positive leverage in the retail space today, which is different than many other asset classes and provides some additional liquidity."
Inflationary times require adjustment, and the retail sector has shown its resilience through a recession, the rise of e-commerce and a global pandemic. In the face of "stubborn" inflation, retailers are pressured even more to streamline operations to retain customers and drive profitable growth. However, retailers should not be limited to the broad product price and service cost increases.
"Instead of implementing such increases that may erode customer trust, retailers can tailor their inflationary price response by customer and product segment, considering both margin performance and consumers' willingness to pay," said Solanki.
How Inflation Creates Opportunities
Colliers projects overall U.S. retail inflation to grow by 8.9% by the end of 2022, with food costs expected to be the hardest hit category at 11.2%, followed by apparel at 7.7% and home goods at 6.9%. For those looking to spend, Solanki suggests looking at discount and value-based brands, including casual dining and fast-food chains, to benefit from consumers tightening their wallets and "trading down" on outlets for their discretionary income.
Geographically, Solanki expects rates to remain higher in southern states and marginally lower in the Northeast, with the former having lower prices to begin with and thus more scope for increases.
Some regional chains in categories such as groceries "are marginally more competitive as the higher population density compared to the South, for example, means there is a more convenient choice in where to shop, which also helps moderate price increases to some extent," she added. "There is also a bit more net migration out of the Northeast, which has taken some of the pressure off real estate inflation."
With experiential concepts, omnichannel strategy and pandemic adaptability, however, the retail sector has produced good reactions to adverse economic conditions in the past decade-plus. This inflationary period should be no different.
"Retail spend shows no signs of abating as consumers prioritize spending on essentials and deal with the higher costs of living more generally," Solanki said. "Heading into the second half of 2022, inflation expectations are mixed, with consumers boosting their longer-term views for prices slightly, while reducing their year-ahead outlook for costs."
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Brian A. Lee
Brian A. Lee is an Atlanta-based freelance writer and former editor of Western Real Estate Business magazine. The Wake Forest and University of Georgia graduate has covered commercial real estate since 2000.
