Retail Foot Traffic to Match Pre-Pandemic Levels This Year

Many Americans are still happy to shop till they drop, and more of them are returning to in-person, in-store shopping to buy what they want.

A new report by CBRE predicts that foot traffic in prime trade areas will match pre-pandemic levels in the third quarter of this year and surpass them in 2025. Many retailers said sales have already done so.

Citing Forrester data, CBRE noted that online retail sales grew by 21.9% in 2022 – while offline sales shot up by 78.1%.

“Although some downtown shopping districts have been hampered by increased crime and sluggish office attendance, many others have recovered to a healthy state,” the report stated.

Rents for prime retail space have risen more than 9% in the Americas compared to 4.8% globally. In some prime areas, like the Oak Street/Gold Coast district in Chicago, retailers sometimes prefer to delay moves until the right location is on the market.

“Anecdotal evidence suggests that tenant/landlord negotiations are now occurring three to four years in advance of lease expirations, which is one of several factors that have shifted the market in favor of landlords,” the report noted.

In other cases, retailers have chosen to open stores in multiple street locations in the same shopping area. This can also be convenient for customers, especially for digital purchase pickups and returns. In addition, retailers can use the opportunity to expand their brands, benefiting those who select alternative or neighborhood locations where rents are lower and build-out regulations less restrictive.

Some retailers took advantage of lower rents charged in 2020 and 2021 to lease better spaces for new flagship stores. Other retailers, the report noted, have purchased their own space instead of renting.

At the same time, stores confront higher build-out costs in urban than suburban markets, notably for electrical/communications/utilities, finishes, fire/plumbing/HVAC, and openings. Operational costs for rent, utilities and employee salaries have also risen significantly.

The report estimated that 70% of retail sales are digitally influenced, with customers researching a product online before purchasing it in a physical store. “CBRE therefore believes it is essential for retailers to operate robust multichannel platforms to be competitive at scale,” the report said. Moreover, digital sales can be an important source of total revenue, with evidence that a physical store increases a retailer’s digital sales by 6.9%, while closing a store depresses them.

“Retail sales per square foot have increased by 26% nationwide since 2019 as the primary driver of sales growth shifted to brick-and-mortar retailers. By 2022, 78% of sales growth came from in-store sales versus 46% in 2019,” the report said.

Even if a customer chooses to shop online, 56% in a survey liked to see the item in a store before buying. And 54% of online clients preferred to return items in-store, and one-third to pick them up there.

“There is no chance,” CBRE concluded, “that e-commerce will render brick-and-mortar retail obsolete. Rather, e-commerce will continue to act as a catalyst for more in-store sales. What little store space remains available in historic street retail districts will be keenly sought after, even as the economic climate ebbs and flows.”