Available retail space across the U.S. just hit a record low, as the retail market continues to post promising numbers. According to a CBRE report, retail availability dropped to 5 percent in the third quarter of 2022, almost a full percentage point lower than the same time period last year. The figure is the lowest level seen since CBRE started tracking availability in 2005. The short supply of available space makes it more difficult for some tenants to get a good deal, but it’s a boost for landlords and operators of shopping centers. The retail industry marked an important milestone midway through this year when the national vacancy rate came back to pre-pandemic levels, according to third quarter data from Marcus & Millichap. Retail’s comeback has been aided by the addition of 841,000 jobs over the summer, pushing the employment base past the previous pre-pandemic high.
The road to record low availability of retail started more than a decade ago, when retail developers held back on developing more retail property after the Great Recession dealt a blow to the industry. Instead, developers relied on a sizable backlog of empty retail space and were slow to build again once the economy stabilized and other kinds of development started to take off in the 2010s. Development was further hampered in 2020 when the pandemic led to widespread retail shutdowns. Supply will probably continue to be constrained, as new retail development is being set back amid the current higher interest rate environment and high cost of construction.
Retail has had a good year in 2022. Overall retail sales (minus gasoline) in the U.S. were up 7.4 percent in October compared to the previous year, according to the Census Bureau. Additionally, nearly every category of retail experienced an uptick in sales year-over-year last month, including dollar stores, where sales jumped 10.4 percent. Meanwhile, department stores continued to struggle, with sales dropping 1.6 percent and electronics stores sales falling 12.1 percent. Despite the recent strong numbers, retail faces some headwinds going into 2023, as continued inflation, waning consumer confidence, and an expected recession could throw a wrench in the industry’s recovery. But however things play out with the economy, as we have already been seeing, some retail markets around the country will fare better than others.