Q1 Retail Trends: Retail Sector showing Slowest Recovery

Reis Reports Q1 2013 Retail Trends written by Kevin Friedman.

Here are some significant and noteworthy trends from the Retail sector of commercial real estate in the first quarter of 2013, as explained by Dr. Victor Calanog, VP of Economics and Research at ReisReports.

  •  The retail sector, which only began to visibly display signs of healing in 2012, has seen the slowest recovery of all commercial real estate sectors.  In the first quarter, the vacancy rate dropped only 0.1% to 10.6%, and rents have grown by 0.4%. Much of this sluggishness for the retail property sector is a result of the housing market crashing in 2008.  Because there had been many properties built to accommodate the increase in homeownership in the pre-2008 recession era, the dramatic drop in demand for homes left many areas with retail locations underpopulated and unpatronized.
  • Regional malls are doing much better than community shopping centers with a 0.3% decrease in vacancy to 8.3%.  Businesses have been choosing regional malls because they offer lower rents along with air conditioning and security.
  • There is a divergence in performance between types of regional malls.  Upscale malls are still having success, while malls that serve a less wealthy market are seeing high vacancy rates because many of their shoppers are choosing to shop online instead of in store.

Dr. Calanog does not expect a huge recovery for the retail sector in the near future.  Considering that there are very high levels of vacancy, development has been very slow.  Retailers are going to need to figure out what combination of in-store and online strategies they plan on adopting to market their products and services.