Retail demand trumps closures in 2023
Low retail space availability causes retailers to scramble for recently vacated boxes
- Keisha Virtue
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Retailers on track to open 1,000 net new stores so far this year
We’ve started to see bankruptcy announcements increase from last year. So far this year, there have been thirteen major retailer bankruptcy announcements compared to 10 total for 2022. The list includes Party City, David’s Bridal, Tuesday Morning and, most notably, Bed Bath & Beyond. Some of these bankruptcies, like Tuesday Morning and Bed Bath & Beyond, have had a significant impact on space vacated in malls or open-air shopping centers.
Despite the rising incidence of bankruptcies, year-to-date opening announcements are running comfortably above closing announcements. As of mid-August, retailers have announced plans to open nearly 4,500 new locations while shutting about 3,500, according to Coresight Research.
Year-to-date bankruptcies accelerate over 2022
Discounters and QSRs continue to lead opening announcements
Discount and variety stores, namely dollar stores, continue their annual aggressive expansion with 2,302 new locations announced so far this year. Dollar General led the group, announcing 990 new stores. QSRs and fast casual concepts like McDonald’s (400 new US locations) and FAT Brands (175 new locations) are also aggressively expanding. Discount chains like Burlington and TJX Companies have also announced strong opening plans. Apparel stores like Carter’s/Oshkosh, Lululemon and Uniqlo have all announced new stores in 2023. Off-price retailers like TJX companies and Ross Dress for Less are also continuing expansion.
Dollar General and Chipotle among retailers with most announced openings in 2023
Low space availability causes retailers to scramble for recently vacated big boxes
Retail net absorption increased 12.6% quarter-over-quarter to 10.8 million square feet. In contrast, deliveries – already low – decreased 5.1% from the previous quarter. Retail construction starts have been falling over the past year, with just 11.9 million square feet of projects started during the first quarter – the lowest level since 2005. The pullback in construction is a response to significantly higher interest rates, higher construction costs and reduced loan availability. With construction minimal and demand still relatively high, expanding retailers are finding it harder to get the spaces they are looking for in desirable areas.
Positive net absorption driven by demand for open-air retail
Availability – the amount of space available for lease, regardless of whether it is vacant – within non-mall multi-tenant retail centers dropped to 7.5% in June, a precipitous drop from 2020 when pandemic measures caused availability to spike to double digits. In fact, there is now less space available for lease in shopping centers than at any point since before the Great Recession of 2008. Smaller store spaces (under 5,000 square feet) have seen the most demand due – in part – to the aggressive expansion of QSRs in the last few years. However, as groceries, dollar stores, fitness and experiential retailers look to grow their footprints, retail spaces over 25,000 have seen a noticeable contraction in availability as well.
As recent retail bankruptcies like Bed Bath & Beyond bring more space back onto the market, retailers have been snapping up these vacated boxes because they are generally in top-notch locations. Discounter Burlington has scooped up 50 such spaces, while other retailers like craft store Michael’s and furniture store Havertys have also taken multiple locations.