Report: Stronger economy boosts increase in store construction/renovations
New York -- A.R.E. (the Association for Retail Environments) is predicting a 10% increase in spending on North American retail store construction and renovations in 2015. The forecast, based on a survey of A.R.E.’s nearly 750 member companies and input from the industry association’s economic advisors, represents the sixth consecutive year of industry growth.
Executives of A.R.E. member companies, including retail design firms, store fixture providers, visual merchandising, and other retail environments companies, participate in the biannual survey.
“2014 comes to a close with reasonable growth of 7.2% over 2013,” said A.R.E. executive director Todd Dittman. “Although healthy, that number represents a paring back of our members’ expectations in our spring survey, when they predicted a 9.8% increase for the year.”
A.R.E.’s designer members reported the strongest 2014 growth among A.R.E. membership categories at 12.3%, an encouraging leading indicator for the industry as a whole.
The 2014 A.R.E. survey results are consistent with the Consensus Construction Forecast released at the end of July by the American Institute of Architects (AIA). It predicted spending for retail/other commercial construction would increase 7.4% in 2014. A.R.E.’s 2015 forecast for 10% growth also aligns with AIA, which forecasts 10.4% growth in retail construction.
“Based on guidance from ITR Economics, A.R.E.’s economic advisor, we are now expecting the next several years to be strong for the industry as a whole,” Dittman said.
The optimism is based on the fact that the U.S. recovery is turning out to be stronger than expected:
• Leading indicators are heading higher.
• The world news isn’t impacting U.S. economy.
• Companies are now right-sized, with capacity utilization near normal.
• New orders and unfilled orders are rising.
• Employment gains and consumer spending are healthy.
• Non-residential construction is improving.
• Deficit spending continues, with no fear of austerity programs.
More positive signals came from better-than-expected early holiday sales results. Economists increased their GDP forecasts based on the strong sales reports as the overall U.S. economy is benefiting from the rapid rise in employment and the boost to real incomes from lower gasoline prices.
America’s rapidly expanding population and the coming of (shopping) age of the millennial generation continue to provide opportunities for retail growth. However, increased competition from an influx of international retailers and the rapid growth of digital retailing, combined with consumers’ demand for unique shopping experiences, are forcing retailers to rethink their businesses.
Remodeling Tax Depreciation Legislation
Retailers’ efforts will be getting some support from Washington, D.C., as newly approved tax depreciation legislation will help retailers remodel their stores. The first provision allows retailers to continue writing off the cost of remodeling and other store improvements over 15 years rather than reverting to 39 years. The second provision allows half the cost to be written off immediately, although that is only available to leased locations.
Retailers can also invest in their bricks-and-mortar properties with reasonable confidence that physical stores aren’t going away anytime soon. Despite the fears that the popularity of online shopping would lead to the demise of physical stores, a recent report by A.T. Kearney reinforced the value of a bricks-and-mortar presence. Kearney researchers determined that 90% of all U.S. retail sales occur within the four walls of a store and 95% of all sales are captured by retailers with a brick-and-mortar presence.