Preliminary Trends Announcement: National Retail Market
Retail Sector Trends
The retail vacancy rate climbed 0.1% to 10.2% in the fourth quarter. It was 10.2% in the fourth quarter of 2018 and 10.0% at year-end 2017.
Both the national average asking rent and effective rent, which nets out landlord concessions, increased 0.1% in the quarter. At $21.48 per square foot (asking) and $18.82 per square foot (effective), the average rents have increased 1.2% and 1.3%, respectively, from the fourth quarter of 2018 — the lowest annual growth rates since 2013.
Net absorption was negative 175,000 square feet. This was largely due to the closing of Kmart stores in 13 metros including two stores in each of Philadelphia, Central NJ and Norfolk that accounted for 585,000 SF of new vacancy in the three markets alone. Construction was 543,000 SF, the lowest quarterly completion total since 2011.
Neighborhood and Community Shopping Centers Vacancy and Rent Trends
Source: Moody’s Analytics REIS
Statistics by Metro
Oddly, fewer metros recorded a vacancy rate increase: 27 of 77, down from 30 in the third quarter. Those with the highest vacancy rate increase include Syracuse, Pittsburgh, Columbia, Long Island, and Greensboro/Winston-Salem. Metros that saw the biggest decline in vacancy include Albuquerque, Tacoma, Fairfield County, St. Louis, and Salt Lake City.
Rent growth was weaker in the quarter as 29 metros posted a rent decline, up from 20 metros that had a decline last quarter. Metros that saw the biggest declines were Chattanooga, Fairfield County, Dayton, Central NJ, and Greensboro/Winston-Salem. Only three metros saw rent growth of 1.0% or more: Seattle, Hartford, and Tacoma.
Metros that posted the highest effective rent growth for the year include Nashville, Seattle, Sacramento, Raleigh-Durham, and Salt Lake City – all of which saw growth rates of 2.3% to 3.4%. Seven metros had a year-over-year effective rent decline led by Fairfield County, Little Rock, Pittsburgh, Chattanooga and Lexington.
The retail employment numbers paint an even grimmer picture than the real estate numbers show: 59 of 82 metros that Reis tracks show a year-over-year decline in retail jobs. However, many of these show an offsetting gain in restaurant jobs yielding only 29 that show a net decline in combined retail and restaurant jobs. Losses were heaviest in Columbus, New Haven, Tucson, Cleveland, and Las Vegas. Metros that saw the highest retail/restaurant gains include Charleston, Colorado Springs, Columbia, Knoxville and Greensboro/Winston-Salem.
Regional and Super Regional Malls Vacancy and Rent Trends
Source: Moody’s Analytics REIS
The fourth quarter looks to be the start of a declining retail market. For more than two years we had remarked how the retail statistics were defying anecdotal reports of a “retail apocalypse.” But this recent data shows that the scales may have tipped as both the retail and the Mall vacancy rate increased in the quarter. The retail rent growth was a scant 0.1% while Mall rents were flat.
The job numbers show that most of the retail job losses in 2019 were in clothing stores (-38,000 jobs) and department stores (27,000 jobs); electronics and hobby/toy stores shed 23,000 and 24,000 jobs, respectively. There remains a silver lining, however, as restaurants added 292,000 jobs in 2019, fitness companies added 23,000 jobs and personal services (spas, salons) added 25,400 jobs. Thus, the retail climate is not as bleak as the store closures would lead one to believe, but it does continue to shift toward entertainment and services-oriented companies.
Thus, our outlook remains cautious: if vacancies continue to rise, they should not do so at a rapid rate given how slowly the numbers have moved over the last two years. Rents should stay flat for the next few quarters. Indeed, consumers continue to buy more clothing and other goods on-line, but they are also spending more on fitness, entertainment and eating out in establishments that lease retail space. We expect these trends to continue in 2020.
Note: Preliminary trends are subject to revision.
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