United States Retail Market Dynamics Q2 2024

Retail net absorption jumped 75.4% quarter-over-quarter to 7.7 million square feet – due mostly to a reduction in move-outs as well as more space taken in community centers, lifestyle centers and Class C malls. In fact, move-outs have declined some 20% since 2021. Leasing activity was pretty much on par with the previous quarter, and the percentage of available space leased over the last 12 months is roughly 33%.

Competition for prime space escalates as availability remains minimal. Tenants are snatching up available space in record time – with average months to lease dropping to new low of 8.5 months. Construction starts are at a record low, and availability is 210 basis points below its historical average of 6.8%. There is no immediate hope for relief, as higher construction and financing costs are dissuading developers from green-lighting new projects. Landlords are wielding much greater pricing power, often holding firm in rent negotiations.

Markets in the South and Southwest continue to see some of the strongest rent gains, propelled by consumption-driven demand and population growth.

Small spaces continue to dominate new leases inked during the second quarter, heavily propelled by QSRs. Wingstop, Jersey Mike’s and Starbucks are a few of the F&B tenants who signed new deals.

There is growing confidence that retail capital markets transactions will stabilize in the second half of the year, leading to an increase in investment activity. With lower-than-expected inflation in June, market watchers are optimistic that the Federal Reserve will make a rate cut in September.

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