The retail markets remain quite healthy, with positive absorption in most major cities during 2023. Overall vacancy rates, including single-tenant properties, range from 2.5-5%. Asking rental rates increased throughout 2023 and that trend is expected to continue into 2024.
Despite the inflationary headwinds in the past few years, the employment sector and consumer spending remain strong. While online retail continues to grow, the traditional shopping experience remains important to retailers who want to offer a vibrant shopping experience and to their customers who want to see and touch products.
Inline retail centers will continue to have high occupancy in cities with strong demographics. At the best centers, rental rates are increasing as there is a growing demand for space in prime locations. Small, stand-alone retail buildings in major cities also continue to have high occupancy rates and demand, provided they have strong area demographics.
Mall owners continue to reinvent themselves by adding unique users to their centers to tamp down the amount of vacant space and breathe new life into an aging asset. Recent mall trends include the addition of event-type spaces and businesses, fitness spaces, and grocery stores. Malls are also redeveloping portions of their parking lot areas by adding apartments or stand-alone retail buildings.
Landlords and tenants are keeping a keen eye on how the new weight loss drugs could impact retail shopping trends. Because these medications stop cravings, fast food, coffee shops, liquor stores, bakeries, etc., could all experience a negative impact on their businesses. Of course, that would also negatively impact the real estate these businesses occupy as the space was built for a specific purpose. On the flip side, there could be more demand for clothing, spa/beauty treatments, and fitness facilities as people start to shed pounds. In the near term, the cost of these drugs and the potential side effects will limit the number of users, but prescriptions in 2023 were up 300% in the United States, so it is definitely a trend to watch.
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Article submitted by Wayne Teig / ITRA Global Minneapolis-St. Paul, Minnesota USA
