Retail's Occupancy Expected to Be Highest in CRE

Retail is positioned to become the US’ highest occupancy commercial real estte category, according to a new report from Marcus & Millichap.

The firm said this long-term forecast is bolstered by a consumer base that is expected to grow by more than 4.8 million households from 2024 to 2028, notably eclipsing the prior five-year tally.

“Candidates in place to backfill space,” according to the report.

Urban retail has reclaimed its prominent position in the market in 2024 with its resilient tenant demand, robust occupancy rates, and steady rent growth, according to a new report from JLL, as reported last week by GlobeSt.com.

Additionally, Marcus & Millichap sees that retailers are acting on consumers’ resiliency as the U.S. retail sector remained in expansion mode last year. Store openings surpassed closures by roughly 1,000 locations.

This activity and moderate supply growth translated to minimal vacancy adjustment, with the segment’s rate just 10 basis points above its all-time low entering 2024, according to the report.

“Vendors expect the record spending that occurred across multiple retail categories last year, and consumers’ prioritization of necessities and experiences, to continue in 2024, as indicated by store opening plans,” said the report.

Marcus & Millichap finds that 36 of 50 major markets are slated to expand stock expansion of 0.5 percent or less this year as many retailers comb metros for available space to grow their footprint.

This will lead to positive net absorption and asking rent growth, while also holding vacancy 100 basis points below its long-term mean.

Potential headwinds could emerge in some segments of retail.

For example, revolving debt has reached record highs, with total outstanding credit card debt surpassing $1 trillion a year ago.

Given that consumer demand for discount goods is expected to rise, retailers Dollar Tree, Dollar General, and Five Below – which ranked as top retailers for square feet leased last year – should continue to grow their footprints.

It’s a dynamic that bodes well for vacated spaces of less than 20,000 square feet, the report said.

The increased presence of health providers and specialists in retail settings is poised to extend a streak of 14 straight years of positive net absorption in the multi-tenant segment.

Medtail continues to be a leading subsector. Last year, 1,000-plus retail leases were inked by medical-related groups, including urgent care providers and health systems.

Animal hospitals should also thrive given that nearly 87 million U.S. households and climbing own a pet.

What won’t survive, Marcus & Millichap said, are 125 Champs Sports, a group of Rite Aid, Walgreens, and CVS stores, and underperforming Family Dollar locations.