Retail space demand rises for the 10th straight quarter

Retail store closings get most of the business media headlines, but it’s retail store openings that are the big story in the marketplace.

Despite spiraling construction costs and high interest rates, retail move-ins eclipsed move-outs by 21 million sq. ft. in the first half of 2023, according to CoStar’s August Real Estate Update, which noted that demand for space has increased for 10 straight quarters.

Phoenix recorded the largest gain of 4.6 million sq. ft. over the past four quarters, a total that represents nearly 2% of the total retail space in that fast-growing market.

Eleven of the top 12 markets for demand gains are found in the Southern or Western regions of the United States, with No. 5 Kansas City being the odd-location-out. Rounding out the Top 5 were San Antonio, Austin, and Fort Lauderdale.

Just five U.S. markets experienced declines in retail move-ins: New York, Los Angeles, Seattle, Sacramento, and East Bay--the metro east of San Francisco that includes Oakland, Alameda, and Fremont.

Demand for space increased in single-tenant properties as well as in strip, power, and neighborhood centers. The only retail real estate sectors posting declines were malls in Class B and C markets.

This year’s pursuit of retail space lags the pace set in 2021 and 2022, but not necessarily for lack of demand. CoStar blamed the falloff on record-low levels of available space and high construction costs.

Availability of space in the industrial real estate sector, however, is poised to be at its highest levels in years.

Brick-and-mortar retailers—which were the biggest lessees of warehouse space in the first half of 2023—may soon find plenty of empty space in distribution centers nationwide following the Chapter 11 filing of Yellow Corp, a dominant carrier in the less-than-truckload trucking industry.

Yellow occupies more than 9 million sq. ft. of industrial space in 240-plus locations nationwide—most of them in DCs built prior to 1985 that feature abundant truck parking and are in short supply.