Retail Resilience Taking Over Despite Headwinds

Cushman & Wakefield has moved well past the ‘e-commerce as a retail killer’ to a narrative that has suddenly shifted to “retail resilience.”

“Today’s economic conditions will necessitate a cooling in spending, with temporary and modest impacts on retail CRE—but structural forces, including the leveling out of e-commerce, support a healthy retail sector outlook,” according to its analyst James Bohnaker.

He said retailers’ “more innovative and acute” focus on the consumer has helped the sector to overcome an estimated 184,000 establishments in the retail, leisure, and hospitality sectors closing permanently in 2020 – a 30% spike over the average attrition rate during 2012-2019. Cushman research finds that in Q2 2023, vacancy rates at shopping centers sank to the lowest level since at least 2007.

Bohnaker cautioned that a lot of the recent spending – fueled by government stimulus and the pandemic – is pretty much spent. Consumers’ cash reserve is down from $2.1 trillion to $190 billion in June—and is on pace to be fully depleted in the third quarter, according to economists at the Federal Reserve Bank of San Francisco.

As well, household credit card debt exceeded $1 trillion for the first time during Q2 this year and the rate of growth was the fastest since 2001.

“The ability to pay off debt will be challenged in a high interest rate environment,” Bohnaker said.

He said expect an immediate shift to cost-conscious shoppers who are more reliant on income growth to maintain that recent level of spending.

He sees value-oriented retailers planning aggressive expansion plans.

“While our view anticipates a mild recession in 2024, retail vacancy rates are expected to increase no more than 1 percentage point—near the 2019 rate of 6.3%, which was a solid year for retail,” Bohnaker said.

E-commerce has not destroyed brick-and-mortar even though online shopping now accounts for a larger share of spend.

Some top digital-native brands—such as Savage X Fenty, Skims, Wayfair, Third Love, and Naadam—have opened their first brick-and-mortar locations.

Retail occupancy has thrived lately in secondary markets, primarily those in Sun Belt regions.

The five markets with the largest increases in retail occupancy rates during the past two years ranked within the top 10 markets for net migration in 2022—Phoenix, Charlotte, San Antonio, Dallas-Fort Worth, and Austin.

Data and technology is helping shopping centers to make smarter decisions and better engage with customers while dropping their overall vacancy rates to an all-time low, “and even segments of the beleaguered mall space are signaling brighter days ahead,” he said.