Retail Has Seen Its Struggles, But Consistent Demand and New Trends are Influencing New Growth
The pandemic changed how consumers researched and purchased goods, forcing brands to rethink their go-to-market strategy and how those goods were made available to consumers. As a result, retail commercial real estate experienced challenges despite high levels of demand. The class hit a low point in Q4-21 but rebounded throughout 2022 as consumers began returning to stores.
Retail has continued its upward path ever since, with year-over-year annual sales growth. This year, the National Retail Federation (NRF) forecasted that retail sales will grow between 4% and 6% over 2022. However, sales growth is just one reason why retail commercial real estate assets are worth greater consideration.
Even with today’s notable economic hurdles, there are additional signs that retail assets should be on your firm’s list this year and into 2024. Let’s explore a few of these indicators and what they mean for retail commercial real estate.
1. In-Store Shopping Persists
While eCommerce exploded during the pandemic and has continued to grow, it accounts for only 15% of all retail sales. As noted in the 2023 Midyear Commercial Real Estate Outlook from J.P. Morgan, many products still require in-person visits. Looking deeper, consumers utilize multiple channels when shopping to make a purchase decision. Gen Z is an influence here as well — just as many Gen Zers enjoy in-store shopping as much as online shopping. It’s clear from these trends that in-store shopping and thus retail commercial real estate assets are here to stay.
2. Retail Itself is Expanding
Consumers now want more than just in-store shopping for their retail experience. They also want dining and entertainment. New retail entertainment types are emerging, with millions of square footage planned across the U.S. and Canada. “Eatertainment” specifically is growing, which is a space that combines food, beverages, games, and more in one facility. With dining out increasing nearly 14% in Q4-22 over 2021, the revenue opportunity is there. The demand for mixed-use space and EV charging infrastructure growth are also contributing to retail asset evolution.
3. Low Vacancy Rates
The vacancy rate for retail commercial real estate is promising, standing at just 4.2%. Retail’s high net absorption rate — 90% as of Q1-23 — looks to continue well throughout 2023 and 2024, and store openings well exceeded closings in 2022. Major retailers announced plans to open a comparable number of locations while closings reduced by more than 57% over 2021.
Are You Set Up for Success When Your Next Retail Commercial Real Estate Deal Arrives?
Whether you’re exploring the evolving retail industry or are considering assets adjacent to it, speed to impact will be crucial. You’ll need to show prospective investors and partners that your vision is one worth their consideration. But more importantly, you’ll need to be able to deliver value as soon as possible. And that can only be achieved by streamlining the many processes involved in managing a deal from end to end.
At Covercy, we’ve built the first real estate investment management platform that combines banking, investor relations, fundraising, automated distributions, and more into a single platform. With the industry still — even today — struggling to adopt technology solutions, there’s no better time to take a proactive step forward and implement tools that make virtually every aspect of your work simpler, faster, more effective, more transparent, and more valuable for all parties involved.
Ready to learn how Covercy can help you transform your existing processes while setting you up for success in future deals? Request a private demo of our platform today.