Brick-and-mortar stores are still reeling from the growth of e-commerce, which mushroomed during the pandemic. Today the retail real estate sector remains in flux, impacted by a recessionary environment and changing consumer preferences. Yet, the sector is not dead by any means. Around 85 percent of the shopping in the U.S. is still done in-store, and that figure is even higher for categories like grocery and value retail. To help retailers get the most out of their real estate, they have been turning to foot traffic data. It is becoming increasingly vital to retail destinations’ survival and retail property owners’ occupancy rates in the presently uncertain economic environment.
“Brokers are certainly leveraging foot traffic to demonstrate opportunities. But, critically, it’s just a piece of the wider location analytics puzzle that brokers are utilizing,” Ethan Chernofsky, senior vice president of marketing with Placer.ai, told Propmodo. That puzzle includes understanding true trade areas, which can help identify opportunities at centers that might not be seeing the best foot traffic, and cross-visitation, which helps demonstrate co-tenancy benefits. Additionally, planned development analysis can help brokers reduce the risk that future projects may present. “The key for brokers is to have a wider understanding that they can use to find the ideal properties and then effectively make the case to the prospective tenant,” Chernofsky added.
Foot traffic is showing positive signs of late. In May, foot traffic nationwide increased 6.6 percent month-over-month, and the favorable figure appears even more promising on the heels of a 5.5 percent month-over-month decline in foot traffic in April, according to data from Colliers. Additionally, the average number of visits rose from 141,100 in April to 150,400 in May, and the average frequency of visits inched up from 3.02 percent to 3.04 percent. These numbers are like manna from heaven for retailers, who are constantly fighting fluctuations in foot traffic. And for leasing agents, positive foot traffic is a selling point.
While foot traffic is just one factor retailers rely on for determining the best location for a tenant, it can prove to be a make-or-break fundamental for certain markets. San Francisco’s retail market is struggling due in no small part to a drastic decline in foot traffic. With tech companies leaving massive office vacancies as they lay off employees or downsize due to remote work, coupled with an increased crime rate that has caused serious safety concerns, San Francisco’s downtown core is becoming a ghost town. The lack of foot traffic has led to retailer after retailer vacating the area, and the downtown Union Square neighborhood is bearing the brunt of it all. In April 2023, just over one year after opening its San Francisco flagship store on Union Square’s once-bustling Market Street, Whole Foods announced it would close the approximately 65,000-square-foot location. Saks OFF 5TH will shutter its store later this year. Old Navy announced in May that it will not renew its lease and will close up shop in July, and Nordstrom is closing its approximately 300,000-square-foot space in the Westfield San Francisco Centre. On the heels of Nordstrom’s decision not to renew its lease at the mall, Westfield, having ceased making payments on a loan on the property, revealed it would turn the property over to its lenders. San Francisco isn’t alone in watching leading retailers depart, and while there are invariably a handful of factors that prompt these businesses to vacate their space, foot traffic is usually among them.
As per a JLL report on U.S. central business districts, after the office and hotel sectors, retail is the most exposed to changes in demand, with the markets being dependent on both routine and spontaneous trips. As the national office market continues to struggle with high vacancies, fewer workers are on the street patronizing the retail offerings that accompany downtown core office markets. However, the nation’s suburbs appear to be faring better than core markets, due in part to hybrid and remote work policies. Those working remotely outside the downtown area are doing their shopping and dining close to home as opposed to traveling to city centers, according to Placer.ai.
Foot traffic, whether in the suburbs or CBDs, is vital to the success of any retail destination. And while this data can be helpful to leasing agents and tenants alike, it has not risen to the level where certain numbers are mandated in lease agreements. “Foot traffic data is useful information, along with the overall economics of a market, but it’s not leveraged for lease negotiations yet,” said Anjee Solanki, head of retail in the U.S. for Colliers.
The retail sector remains in flux. While foot traffic numbers did increase month-over-month in May, they decreased 2.26 percent year-over-year. Markets that are seeing fewer visitors are plagued by retail tenants’ reactions to such factors as disruptions in the supply chain, rising operation costs, and most notably, the struggling office market. Particularly in downtown cores, office and retail go hand-in-hand. If employees are not going into the workplace, then the retail that was established to support these employees and other visitors to the area is destined to struggle. Retailers can’t continue to thrive without substantial foot traffic and it appears that, until the office market rebounds in struggling markets, retailers will continue to operate under precarious conditions. Incorporating foot traffic minimums into lease agreements hasn’t happened yet, but if it did, we might see much more attention being paid by landlords and brokers to this important metric.