Reframing Retail: 1,000 New Stores Defy Commercial Turbulence
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Episode Transcript:
In the dynamic world of retail, a remarkable tale unfolds, defying the turbulence in commercial real estate. As 2023 unveils itself, a surprising narrative takes center stage – retailers are set to unveil 1,000 net new stores across the U.S. How is this possible, you ask? Let's dive into the details.
Amidst record-low retail availability, the demand for retail space remains resolute, despite inflation, high interest rates, and even the challenges posed by establishments like Bed Bath & Beyond and Christmas Tree Shops.
The strength of the retail sector can be attributed to multiple factors. A significant one is the reduction in retail construction since the 2008 to 2009 financial crisis. This strategic slowdown allowed the oversupplied sector to absorb existing real estate, creating a leaner and more adaptive marketplace.
Retailers have also orchestrated a transformation by leveraging online sales data and analytics technology, enabling them to choose optimal store locations with precision.
Contrary to predictions, e-commerce didn't render physical retail obsolete. Digitally native companies are embracing physical spaces after reaching their online limits, and consumers returned to stores as pandemic restrictions eased.
In a snapshot, retailers had unveiled plans for almost 4,500 new locations by mid-August, with around 3,500 slated for closure. Nationwide, retail space availability plummeted to a historic low of 4.8% in Quarter 2, according to CBRE, a real estate services firm.
In stark contrast, the office market paints a different picture. Hybrid work schedules pushed the office-vacancy rate to a 30-year high of 18.2%, while retail stood resilient.
Suburban shopping centers thrived due to remote work, as consumers frequented local stores more. Amid rent adjustments, the average asking rent for U.S. retail surged 6.3% since Quarter 2 2020.
High-end malls reported leasing and foot traffic recovery, even as retail investment cooled. Dollar stores led lease signings, with Dollar General opening 1,000 stores. Amidst the evolving retail narrative, one thing is clear – the sector's resilience is a testament to its ability to adapt and find new harmonies in a changing commercial landscape.
This is Tyler Cauble, Signing off