At one point, the pandemic looked like it would be the final nail in the coffin for brick-and-mortar retail, speeding up the shift to e-commerce. But despite the benefits of online shopping, many people still enjoy going to a store to see and feel products up close.
Retail has remained surprisingly resilient, even though the share of online spending has not declined since the pandemic-era surge. In the second quarter, only 4.8% of retail space nationwide was available, according to CBRE, the lowest level in the 18 years the firm has tracked the rate. Meanwhile, the vacancy rate for office space hit 18.2%, a 30-year high.
But retail doesn’t automatically outperform. Major retailers, like Walmart and Foot Locker, are shutting down stores, and Bed Bath & Beyond closed 896 stores due to bankruptcy. Still, while retailers plan to close 3,500 stores, 4,500 new ones are expected to pop up in their place, according to Coresight Research.
Asking rents for retail space are also up 6.3% since the second quarter of 2020. Even so, investment in retail is declining from a 2022 boom, in part due to high interest rates. In the first half of 2023, the volume of total deals has fallen 48% when compared to the first half of 2022, according to MSCI data. The continued demand that landlords are seeing for retail space is likely due to low supply since retail construction dropped sharply after the 2008-2009 financial crisis.
Retail sales growth is expected to slow in 2023, according to Deloitte. And overall, employment in the retail sector is expected to decline by nearly 4% by 2030, according to the Bureau of Labor Statistics.
But with some firms warning of a commercial real estate crash, retail seems poised to survive, even if the sector may not be immune…