Following last week’s strong retail sales figures for December released by the Commerce Department, some economists are revisiting projections for year end GDP, according to Bloomberg.
They are supporting several aspects of commercial real estate such as industrial and restaurants & bars, according to a news video this week from Marcus & Millichap.
Core retail sales were up by 3% year-over-year as of December on an inflation-adjusted basis.
“Retail sales are outperforming expectations,” said its National Director of Research and Advisory Services, John Chang.
“They’ve been supported by increased savings as well as the strong employment market, which added 2.8 million jobs in 2023.”
Naturally, not every retail subsegment is performing the same,” he said.
For that period, non-store (or internet) retail sales were up 6.8%, while electronics surged by 7.8%, and restaurant and bar sales shot up by 8.2%.
“The big winner has been internet sales, which now constitute about 21% of total core retail sales,” Chang said. “And internet sales drive industrial demand. We saw that play out through the pandemic.”
Industrial absorption surged in 2020 and 2021 when internet sales were growing by 30% to 40% on a year-over-year basis.
But over the last 12 months, internet sales have been growing by just 3.7% on average and space absorption has tapered accordingly, according to Marcus & Millichap.
“Looking forward, I expect e-commerce to continue to grow, and that should also continue to drive positive absorption for industrial properties,” Chang said.
Restaurant and bar sales were the fastest-growing retail segment compared to last year and the year before on an inflation-adjusted basis.
And when you look at restaurant sales compared to grocery sales, the restaurant sector has hit overdrive, he said.
Back in 2015, total restaurant and bar sales overtook grocery store sales for the first time. Then in 2020 during the pandemic, bar and restaurant sales plummeted while grocery store sales surged.
“But the pre-pandemic trend reasserted itself in 2021,” Chang said, “with restaurant sales climbing steadily and at a much faster pace than grocery stores – and grocery stores are still doing very well.
Food and beverage sales are up by 10.4% compared to pre-pandemic levels on an inflation-adjusted basis.
That reinforces the particularly strong performance of grocery-anchored, open-air retail centers, as well as single-tenant restaurant properties.
Multi-tenant retail vacancy rates ended 2023 at about 5.5%, just 10 basis points higher than the record low.
Meanwhile, the single-tenant retail vacancy rate closed out in 2023 at about 4.4%, also just 10 basis points off that segment’s record low.
On the other hand, furniture and building material sales have lagged the broader trend, while sporting goods and food and beverage retail sales were modestly negative compared to December 2022.