CBRE: Available retail space hits a 10-year low
Brick-and-mortar retail is alive and well.
Well-capitalized retail chains are clawing for brick-and-mortar space. But the new supply of retail gross leasable area fell by 59% in 2021’s fourth quarter compared to 2020, according to CBRE’s fourth quarter U.S. Retail Report.
That’s the lowest amount of space available to retail tenants in a decade, a disheartening impediment to expansion-minded stores, gyms, and restaurants. Net absorption of 20.6 million sq. ft. during October, November, and December marked the fifth consecutive quarter of upward demand. (A positive reading means more space was newly leased than vacated.)
“The retail recovery is in full swing,” said Bill Wright, senior managing director and retail leader for CBRE. “We are seeing strong demand coupled with scant new supply, which has brought a real balance back to the market. All signs point to activity remaining very strong in 2022, as many retailers look to capitalize on the market to address increased consumer demand for physical retail.”
Positive holiday growth in most retail categories intensified the space-race. Clothing and accessories retailers posted the highest sales growth of 48% compared to the fourth quarter of 2020, and food and beverage providers did 36% better than last year due to the easing of dine-in restrictions. Department store operators got what they wanted for Christmas—a 23% sales increase over last year.
Space availability across all retail real estate sectors fell by 30 basis points to 5.6% quarter-to-quarter--an availability rate that was down a full point compared year-to-year. Power centers appeared to be the favored choice of expanding tenants, matching a four-year-low availability rate of 6.4%.
Those new power center tenants were often former mall inhabitants. Availability in CBRE’s Lifestyle & Mall category increased by 40 basis points quarter-to-quarter and 50 basis points year-over-year to 6.9%.
Low availability, of course, leads to higher rents. The overall asking rent increased by 1.6% year-over-year to $21.87 in the fourth quarter.
“Rent growth has eclipsed the long-term average for two consecutive quarters and shows no sign of stopping due to the dearth of new supply,” according to the report.
The 23.5 million sq. ft. of retail space delivered in 2021 was down by 36% from 2020 and 49% from 2019 -- and current building market conditions figure to keep new builds at low levels. Rising costs for construction materials and lower availability of skilled labor promise to further constrain the building of new projects, according to CBRE.