Many have been pleasantly surprised by the continued progress of the industrial, office and multifamily sectors of commercial real estate in the past few quarters. The retail sector, however, has been struggling a bit, showing tepid growth throughout the third quarter. Despite the fact that consumer spending is on the rise nationwide, CoStar’s Third Quarter Retail Outlook and Review presentation indicated that since the summer slowdown in retail sales, the sector has yet to see any solid progress in its recovery.
As a commercial real estate agent in Boston’s Metro South area, I feel that it’s genuinely important to assess statistics like these and figure out what factors are contributing to them. It helps me advise my clients on where to find the right commercial space for their needs. When it comes to growth in retail space, it seems that there are a few market conditions that are contributing to its sluggish growth, including:
Economic fears and anxieties. While consumer spending has increased nationwide, many fear the fiscal cliff and the effects of Europe’s economic slowdown. The economic uncertainty has created an uneasy climate in retail, and that has been a huge contributor to its stagnancy throughout the past several quarters.
There are “winners” and “losers” in the retail sector. The large and successful shopping centers are not hurting in their numbers. They attract the bulk of the tenants, and they are the spaces that have the privilege of hiking their rents year after year. Unfortunately, these aren’t the parts of the retail sector that really need the tenancy. The smaller, less well-known shopping centers are the ones struggling with vacancies and less traffic. This has put a major standstill in the construction of new retail centers as well, because most projects will only take off in areas where the traffic is expected to be astoundingly high. The less successful retail spaces and the struggles they are enduring in today’s economy are what are putting a damper on any real growth in the retail sector.
Despite these market conditions, there is one bright spot in the retail sector, and that is investing. Investment sales have shown a great deal of improvement over the last several quarters, with sales volumes at or near its 10-year average. Retail capitalization rates also remain elevated relative to other property types, which is promising for investors within the sector. When you remove the distressed shopping malls from the equation, many investors in retail are re-developing their interest in risk, which is something that will undoubtedly help the this sector of commercial real estate see a slow recovery.
Analyzing market conditions like these allow me to advise and guide my clients through the decision-making process when they begin their search for commercial space. If you have any questions about finding office or industrial space in Boston’s Metro South area, don’t hesitate to contact me.