The retail space is seeing success with occupancies thanks to big consumer demand in the first handful of months of the year.
In March alone, multi-tenant vacancies in the retail space hit an all-time low, a national report from Marcus & Millichap shows. In addition, single-tenant occupancies almost hit a record low, just missing the mark by 10 basis points. Convenience stores and fast food establishments have posted the lowest vacancy rates, which came in at 1.1 percent and 1.3 percent, respectively.
“The retail sector was the only major commercial real estate property type to note vacancy compression over the yearlong period ending in March,” the firm wrote in the report.
“Consumer resiliency is fueling steadfast tenant demand for space.”
Specifically, consumers flooded supermarkets, restaurants, discount stores, and fitness centers. All of those establishments recorded between five percent and nine percent surges in foot traffic during the first five months of the year versus the same period in 2023. Discount stores led the way with 8.9 percent growth. That was followed by restaurants (6.4 percent), and grocery (5.7 percent).
Asking rents also had some notable increases. Department stores saw a spike of 14.5 percent in that category. Supermarkets came in second place, with asking rents coming in 9.7 percent higher, and fast food restaurants were next at 5.7 percent. However, a couple went negative. The worst was regional malls, with asking prices plunging by 10 percent and drug stores saw a 9.8 percent dive.
In total, core sales in the retail space rose 2.9 percent year-over-year in the first five months of the year.
Marcus & Millichap attributed some credit of the retail results to the strong labor market, as 1.24 million jobs were added year-to-date through May.
For the full year, the real estate investment company is offering mostly positive sentiment. For one, asking rents are expected to grow 2.2 percent compared to 2023.
“A still-limited volume of vacant space in 2024 allows the average asking rent to reach a record mark of $22.88 per square foot, Marcus & Millichap said.
It added, “six of the top 10 metros for marketed rate growth are located in the South.”
And while vacancy is expected to rise for the first time since 2020, it’s still 100 basis points below the long-term median.
Marcus & Millichap projects 2 million job additions for 2024, which would represent a 1.3 percent increase year-over-year. However, it cautions that employment growth will slow down in the second half. For construction, 40 million worth of square feet is set to be completed, a slight 0.4 percent boost from 2023.
“Tight vacancy, record asking rents and resilient consumer spending should continue to draw investors to retail listings,” Marcus & Millichap said.