United States Retail Outlook Q1 2023

Executive summary:

• Retail fundamentals have started to pull back as a consequence of sustained inflation and banking troubles. Consumers have responded to persistent inflation by shifting money away from discretionary goods purchases in favor of groceries and other key necessities. Discounters and online retailers win consumers’ dollars, as real disposable income wanes.

• Net absorption totaled a modest 9.1 million square feet for the quarter – a substantial decline from the 20.1 million square feet absorbed in the fourth quarter.
  

• Demand is still coming largely from discounters like Burlington and dollar stores, as well as QSRs and fast casual restaurants. In fact, aggressive expansion by QSRs and coffee chains have contributed to a record-low availability rate of single-tenant retail space at just 2.4%.
  

• Bankruptcy announcements have accelerated from last year. So far this year, there have been nine major retailer bankruptcy announcements compared to 10 total for 2022. The list includes Party City, David’s Bridal, Tuesday Morning and Loyal Companion pet store.
  

• Preliminary transaction volumes for Q1 were roughly $16.5 billion, bolstered by GIC’s acquisition of STORE Capital for $15 billion, nearly half of which was attributed to retail. Outside of M&A activity, grocery-anchored and small format retail dominated the market with $1.7 billion and $1.8 billion in total volume respectively.
  

• Multifamily additions are particularly beneficial in areas with dense population and high growth – such as in major Florida metros. In Central Florida, several vacant Macy’s boxes are being converted into multifamily complexes, and in South Florida plans are underway to convert empty department store space and underutilized parking space into multifamily facilities.