JLL: Sun Belt markets lead in growth; chains signing most leases in 2023 were…

Five Below has nearly 1,400 stores in 43 states.
Five Below is among the top 10 retailers for the most square footage signed.

Markets in the Sun Belt are best poised to continue outsized retail rent growth.

That’s according to JLL’s Retail Q4 Outlook, which said that the top eight markets seeing the highest population growth between mid-2022 and mid-2023 were all located in the Sun Belt, including in Texas, Florida, North Carolina and Georgia. Retail space demand in many of these markets has hit record levels and there is, on average, 13% less space available in these markets than the national average.

In terms of retail property performance, the surge in mall demand helped boost fourth quarter totals. Vacancy fell to its lowest level at 4.0%. Shopping centers absorption surged 37.5% from the previous quarter. Grocery-anchored centers remain in high demand, garnering the highest transaction volume in 2023 – more than 20% of total retail transaction volume.

As to the retailers who actually signed new leases during 2023, discounters remain among the top. Dollar Tree, Five Below, Burlington and TJ Maxx are all among the top 10 retailers for the most square footage signed. These top retailers naturally occupy mid- or big-box space. 

However, according to CoStar, over two-thirds of retail leasing activity comes from small tenants occupying less than 5,000 square feet. on average. For smaller spaces, quick-service restaurants Wingstop and Raising Cane’s nab the top spots.

Other highlights from the report are below.

•Between 2017 and October 2023, the top retailers who backfilled vacant big box space included discounters, fitness centers and craft/hobby tenants. Hobby Lobby backfilled the most square footage, while Burlington took the largest number of vacant spaces.

•Discounters — primarily dollar stores and other bargain retailers — topped the list of active tenants and announced over 2,300 store openings in 2023. 

•Restaurants, primarily quick-serve and fast casual, announced over 1,600 planned new locations. 

•In contrast to prior quarters, all mall subtypes saw strong positive absorption during the fourth quarter, particularly super regional malls. For all U.S. malls, super regional malls saw net absorption surge to 2.9 million square feet, regional malls jumped to 1.4 million square feet, and lifestyle centers rose to 0.6 million square feet. JLL noted that the fourth quarter was  the first quarter it has seen positive net absorption for all three mall subtypes since the fourth quarter of 2017.

•With construction activity at record lows, power centers continue to see solid fundamentals, with low vacancies, rising rents and steady net absorption. With availability at only 5.2% — the lowest in 16 years  there simply isn’t a lot of space for big box retailers looking to expand. Sunbelt markets like Atlanta, Houston and Dallas took the most power center space in 2023

•Shopping center demand continues to be driven by two main tenant categories: discount-oriented retailers and fitness tenants. Dollar stores continue to push expansion, particularly in community centers and neighborhood centers.

Fitness center expansion is being propelled by traditional gym formats such asPlanet Fitness and Crunch, but smaller boutique fitness concepts like boot camps and barre training are also opening. 

Food retailers such as Whole Foods Market and Wild Fork also minted new locations during the quarter.

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