CBRE: Five forces will shape the future of retail
Consumer spending looks to continue its upward trend, led by Gen Zers and millennials willing to take on more spending debt than older generations.
Consumers are gravitating to dense retail clusters, leading investors and developers to continue spawning vibrant mixed-use projects.
At the same time, the United States is under-retailed by 200 million sq. ft., leaving growing markets such as Austin and Nashville hungry for new center development.
These are some of the megatrends outlined by CBRE in a newly released report entitled, “Five Forces Shaping the Future of Retail.” More details from the list compiled by the global real estate services provider:
- Consumers remain resilient Gen Zers and millennials are expected to fuel consumer spending in 2025. A survey of 2,200 consumers conducted for CBRE by Morning Consult found these younger generations less fearful of taking on debt to spend in the near term than older ones. Thirty-nine percent of millennials and 36% of Gen Zers said they were “very likely” or “somewhat likely” to do so, while only 31% of Gen Xers and 20% of baby boomers responded in the affirmative.
- “Vibrant” mixed-use districts thrive. Space is getting snapped up in these developments (which blend office, residential, retail, dining, and entertainment) despite the fact that their rents are 74% higher than the ones in prime business districts and 110% higher than ones in non-premium districts. The availability rate in vibrant mixed-use projects has compressed over the past 10 years despite having the highest share of new supply as a percentage of existing inventory (17%) among the district types.
Consumers are gravitating to dense retail clusters. A change in living and working patterns since 2020 has activated new shopping areas, especially dense suburban retail clusters. Rent’s compound annual growth rate of 2.6% since the second quarter of 2022 outperformed the broader market, sending rents 28% higher than for all other retail (excluding high streets).
Since 2009, the average availability rate (5%) is lower in these clusters compared with the overall market (7% for retail excluding these clusters), with little variation over that period. Although the availability rate outside of these dense clusters has fallen faster, it is primarily due to virtually no availability within them, requiring retailers to find space in other, less dense locations.
New construction’s 15-year falloff. Retail development slowed precipitously over the past 15 years, with annual completions in 2021-2023 down by more than 80% from the mid-2000s. Combined with steady consumer and retailer demand, the national availability rate fell to 4.7% in the second quarter of 2024, equaling the lowest rate since at least 2005. As a result of these trends, the U.S. is now under-retailed by 200 million sq. ft., or approximately 5% of total stock.
Two-thirds of retail subsectors are vulnerable to e-commerce. Having measured the number of retail jobs lost to e-commerce since its inception at the turn of the century, CBRE found that 19 of the retail industry’s 28 subsectors have been highly susceptible to online shopping.
The subsector plainly taking the worst of it is bookstores, whose sales fall off by 17.8% on a 1% national increase in e-commerce adoption. Next came office supplies (-10.4%), department stores (-8%), electronics (-7.2%), home furnishings (-6.1%), and clothing stores (-6%). Subsectors that have proven wholly resistant to e-commerce included warehouse clubs, grocery stores, lawn and garden, and beer and wine stores.
