Retail sales have wavered in recent months amid increasing inflation, the Delta variant, and supply-chain disruptions that have continued to erode consumer confidence. But there was a disconnect between what consumers were saying and their actions, as September retail sales brought a pleasant surprise despite consumers holding negative views with regard to current conditions and expectations for the future. However, in October both consumer confidence and retail sales increased.
Consumer confidence increased in October, following declines seen over the prior three months as concerns over macroeconomic headwinds eased. The share of consumers who indicated they intend to purchase housing, vehicles, and appliances all increased in October as well, which is an indicator that consumer spending will continue to support economic growth for the remainder of the year.
Supported by increasing wages and excess savings, October retail sales increased as consumers started their holiday shopping early. Retail sales totaled $638.8 billion in October, which is a 1.7% increase from September and a 16.3% increase above October 2020. The increase in retail sales that began at the beginning of the year continues to have a positive impact on retail real estate, leading to positive net absorption of retail space absorption.
Demand for Retail Space Continues
During the past three months through November 18, there was a net absorption gain of 23,209,440 square feet (sf). Of the five categories of retail assets, absorption for the past three months was positive in all. General retail led all retail categories with 11,492,409 sf, followed by neighborhood centers (7,235,730 sf), strip centers (2,662,841 sf), power centers (1,268,762 sf), and malls (325,850 sf). As of November 18, 2021, leasing activity totaled 23,200,363 sf.
According to CoStar® data covering 390 metros, net absorption of retail space continues to be led by the South, specifically Texas and Georgia. The leaders of retail net absorption as of November 18, 2021 were Houston, Dallas-Fort Worth, Atlanta, New York City, and Phoenix.
The combination of increasing absorption and declining net deliveries resulted in a national retail vacancy rate of 4.6% as of November 18, 2021. Retail vacancy rates were lowest in general retail (2.8%). Vacancy rates in strip centers and power centers were 5.3% and 5.4%, respectively, with both malls and neighborhood centers registering 7.2%. While general retail has the lowest vacancy rate, vacancy rates for strip centers fell the most, by 27.8 basis points, from Q3 2021 to November 18, 2021.
The metros with the highest retail vacancy rates were located in Illinois and Pennsylvania. Both Decatur, IL and Kankakee, IL led the nation with the highest vacancy rates for retail space at 12% in both metros. Chambersburg-Waynesboro, PA, and Johnstown, PA vacancy rates were 11% and 9% respectively. The lowest retail vacancy rates in the country were located in Wenatchee, WA (0.4%); Cedar Rapids, IA (1.0%); Billings, MT (1.0%); Bellingham, WA (1.2%); and St. George, UT (1.3%).
Retail asking rents continue to trend upwards, where asking rents have reached a year-over-year increase of 2.6%. The 2.6% increase as of November 18, 2021 is the highest rent growth retail has seen since Q2 2018. In regard to retail property categories, the largest increase in asking rent growth was seen in malls with a 0.74% increase from Q3 2021. General retail, power centers, strip centers, and neighborhood centers record increases from Q3 2021 of 0.65%, 0.61%, 0.55%, and 0.52%, respectively.
The largest increases in asking rent growth were in Akron, OH (9.7%); Tulsa, OK (8.5%); Las Vegas, NV (8.0%); Jacksonville, FL (7.9%); and Atlanta, GA (7.8%). Markets with negative retail asking rent growth were led by San Francisco, CA (-5.2%); New Haven, CT (-1.9%); Providence, RI (-1.5%); Baltimore, MD (1.4%); and Boston, MA (-1.3%).