Mid-Year Retail: Three Takeaways with an Eye Toward the Horizon
Retail has enjoyed a couple of stellar years, and the first half of 2023 has carried this momentum forward. The National Retail Federation predicts total annual sales growth between 4% and 6% — above the pre-pandemic average. Within the retail real estate community, the climate remains positive as well, as evidenced in dealmaking volume and anecdotal conversation among our colleagues in leasing and property operations.
That said, the halfway point of any year is a fitting time to take stock of factors influencing the marketplace. Consider these three takeaways.
- VELOCITY AND OPTIMISM CONTINUE (FOR NOW)
To date in 2023, demand for quality has yielded steady leasing for both vacant spaces and pad sites by new market entrants and existing concepts. Activity within discount and experiential retail, grocery, fitness, fast-casual dining and personal care, among other sectors, is bringing fresh variety and distinction to shopping centers.
And tenants are optimistic about what’s yet to come for 2023. In Levin Management’s mid-year survey of store managers within our 125-property leasing and management portfolio, approximately 75% of participants reported similar or higher sales levels year-over-year; the same percentage expects steady or improved velocity through year end.
Yet it would go against the grain of our cyclical industry for this pace to continue indefinitely. That said, the inevitable slowdown this time around will likely manifest as a return to equilibrium, as tightening supply begins to tamp down dealmaking.
- CLOSURES BRING A REMINDER – AND OPPORTUNITY
The first half of 2023 saw its share of store closures and Chapter 11 filings – notably by Bed, Bath & Beyond, David’s Bridal and Party City. Yet the departure and restructuring of even the most established retailers carries a silver lining. Sizeable vacancies are a chance to strengthen tenant mixes with new or expanding players, either by backfilling with a like-size user, or subdividing and re-leasing to multiple, smaller entities.
Bed, Bath & Beyond’s spaces – typically among the most attractive positions in the most competitive open-air centers – couldn’t have come to market at a better time. A variety of tenants are actively seeking well-located space in this size range, and interest in these prime opportunities is high. Many deals are already in process, with landlords leveraging the chance to bring in stronger, more attractive brands.
- IT'S ALWAYS THE RIGHT TIME TO LOOK AHEAD
Retail doesn’t stand still. In turn, managing, leasing and improving retail properties must be evolving and ongoing. Even in the best retail climates, landlords and property owners need to focus on strengthening tenant mixes and positioning centers to better serve and succeed in their marketplaces.
For example, at Blue Star Shopping Center in Watchung, N.J., where our team serves as leasing and managing agent, a newly launched revitalization is successfully accommodating a long-time anchor’s changing needs. A tenant since 1980, ShopRite entered into a larger, 72,000-square-foot lease to relocate within the 420,000-SF retail center. This has catalyzed a program of center-wide renovations to modernize a legacy destination property. Following the relocation, our construction management team will reconfigure the vacated store to accommodate multiple new tenants.
In sum? As the second half of the year begins, we are watching the horizon for signs of a market softening, whether due to a shifting supply-demand balance, sustained economic uncertainty or other drivers. At the same time, this industry remains on an impressive trajectory. Retail is showing its resiliency, and the property owners who keep up will be well positioned for whatever lies ahead.