U.S. Retail Outlook: Main Street Fundamentals Are Strong

Wall Street's most recent earnings season began with the big banks reporting on more than just strong profits. Their latest data indicates U.S. consumers continue to outperform expectations, with household spending remaining steady and healthy credit quality remaining the norm.

Despite growing economic insecurity in the form of higher prices for gas, food, and other staples, combined with overall inflation solidly above the Fed's two percent target, consumers continue to spend. That's good news for the commercial real estate retail segment.

With consumer spending driving decisions, we wondered if all that spending was translating into higher leasing and construction activity on Main Street. Four local retail specialists shared their thoughts on their respective markets, and though the consensus is generally positive, some responses were tempered slightly thanks to the aforementioned uncertainty.

Retail Market Snapshots

"Las Vegas retail continues to show real strength, but the market has layers,” said Buck Hujabre, Sr. VP of Retail with MDL Group/CORFAC International in Las Vegas.

“Demand is concentrating with flight toward Class A, rents are rising, and economic uncertainty has added caution to expansion decisions. Navigating that successfully takes more than market data; it takes the kind of deep local relationships and submarket knowledge that independent brokerages are built on."

Expansion is also playing a role in what's happening centrally in Louisville, Kentucky. "With low vacancy rates and steady leasing activity across the MSA, retail expansion from growing concepts such as Publix, Wawa, Dutch Bros. and 7 Brew is creating new development and redevelopment opportunities throughout the market,” said Will Duncan, Principal of Duncan Commercial Real Estate/CORFAC International.

“Continued population growth, limited new supply in certain submarkets and strong consumer demand are supporting healthy retailer interest and rental rates," he added.

In the Northeast, "retail vacancies in Northern Delaware remain moderate, currently around 7 to 9 percent, which is running slightly lower than the national average," said Joe Latina, SIOR, Managing Principal, LMT Commercial Realty/CORFAC International in Wilmington, Delaware.

But not all spaces are seeing this trend. "Vacancy remains highest in older strip malls and lower-performing suburban centers. Leasing is active for necessity-based retail, hospitality and mixed-use developments," Latina noted.

Higher input costs are making retailers think about retrofitting established properties instead of building new ones, points out Troy Gerspacher, CCIM, SIOR, President of Gerspacher Real Estate Group/CORFAC International in Medina, Ohio.

"The retail market across most suburban locations in Northeast Ohio remains strong, with vacancy rates generally below 8 percent,” Gerspacher said. “New construction remains limited due to high building costs, which has led to available space being absorbed quickly. Overall momentum is positive, with strong confidence among retail businesses. This confidence is reflected in long-term lease commitments of five to 10 years, as well as continued purchases of retail properties."

Going forward, all eyes continue to be on consumers, as their spending behavior tends to heavily influence retailers' real estate decisions.