Retail foot traffic rises above pre-COVID levels
JLL Retail outlines key takeaways for retail real estate in 2022
CHICAGO, Dec. 06, 2021 – More than a year-and-a-half after the pandemic’s upheaval to the retail industry, excess cash and pent-up demand are improving economic fundamentals and retail sales and foot traffic are on the rise. Foot traffic for the week ending November 7, 2021 was 3.9 percent above its level in 2019, according to Placer and retail sales stand 30.6 percent above the levels seen at the onset of COVID, according to the U.S. Census Bureau.
In the new Retail Recovery report, JLL found the number of retailers filing for bankruptcy has declined to a five-year low, and openings are on pace to exceed closures for the first time since 2016. Leasing activity for 2021 is set to be the best year since 2018 and year-to-date net absorption totaled 54.6 million square feet.
Q3 retail net absorption hits highest level in years
Retail foot traffic rose 61 percent this Black Friday compared to last year, according to RetailNext. Pent-up demand and more free cash pushed average transaction value per shopper up 18 percent over 2019, which put overall sales at just 5 percent lower than two years ago.
As retail real estate recovery gains steam, JLL Retail notes five key takeaways to consider heading into 2022.
Retailers eye the Sunbelt and suburbs
The pandemic brought forth a migration to less-crowded markets with lower costs of living, a shift from urban metros into suburban neighborhoods, which can be seen through rent and vacancy performance.
Suburban retail foot traffic has recovered
Source: JLL Research, Placer.ai
Select shopping centers were chosen to represent markets that JLL tacks nationality
Top rent growth markets since the onset of the pandemic include Las Vegas (7.4 percent), Atlanta (7.5 percent) and Tampa (6.0 percent), and top vacancy rates were in markets like Las Vegas and Orlando. Now retailers are going where the people are, targeting metros with outsized population and job growth like Las Vegas, Atlanta and Orlando. For instance, Just Salad, a fast-casual restaurant typically located near large office buildings is planning to expand in the suburbs. The brand currently has roughly a dozen suburban locations with plans to open more.
Open air centers are retail’s strongest asset
Open-air centers, particularly those with essential tenants like grocery and drug stores, have performed consistently better since 2020. All retail property types are seeing higher rents than at the onset of the pandemic, and strip center rent growth is the highest at 3.1 percent, with neighborhood centers following at 3.0 percent.
Disparity between malls widens
Class A malls – properties with the best locations and most attractive mix of tenants – are performing much better than B and C malls. They have lost fewer inline and anchor tenants and have significantly lower vacancy. At the onset of COVID in Q1 2020, Class A mall vacancy rose 10 basis points while Class C mall vacancy spiked 80 basis points in just one quarter. As of Q3 2021, the vacancy difference between these mall classes has grown to 760 basis points, up from 490 basis points at the end of 2019.
Class C malls see highest climb in vacancy
Source: CoStar, JLL
“All malls felt the impact of COVID, especially the malls that were struggling prior to the pandemic, and the malls that are recovering are the ones that are shifting to match consumers new shopping needs,” said Greg Maloney, CEO & President, Retail, JLL. “Even the Class A malls are re-inventing themselves because of department store closures and this becomes attractive to investors as malls repurpose space with new tenants.”
Curbside is here to stay
One permanent change is the increased demand for curbside pickup and delivery. According to data from eMarketer, only 6.9 percent of retailers offered pickup in December 2019. By August 2020, it had shot up to 43.6 percent. Prior to the pandemic, grocery was relatively untouched by e-commerce. As consumers head back to stores, online grocery sales growth has slowed, but the share of online sales is still elevated. However, brick-and-mortar stores play an integral role in the success of online grocery sales since more than half of online grocery sales come from curbside pickup orders, according to the Brick Meets Click/Mercatus Grocery Shopping Survey.
Urban retail will return with office workers and tourists
Urban shopping centers and malls are still seeing foot traffic 16 percent under pre-pandemic levels. Gateway markets like New York have long relied on international visitors to boost retail sales. In fact, global visitors fueled more than $43.4 billion of shopping sales in 2019. When travel restrictions hit in 2020, retail traffic and sales in these strong urban markets sank.
“Retail has shown a strong year-over-year rebound with suburban retail leading the recovery,” said Naveen Jaggi, President, Retail Advisory Services, JLL. “As the foot traffic from tourism and the workforce returns to full capacity, we anticipate a strong rebound for quality retail space in key urban markets.”
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion in 2020, operations in over 80 countries and a global workforce of more than 95,000 as of September 30, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.