By Garrick Brown, Vice President of Retail Research, Americas
Cushman & Wakefield has recently released our U.S. Shopping Center Snapshot for Q4 2015. The snapshot provides deep insight on the past, present and future outlook for shopping centers and correlating retailers across the country. As the fourth quarter of 2015 (Q4 2015) came to a close, U.S. shopping center vacancy was 8.0%, marking the 15th consecutive quarter of steady or declining vacancy in the marketplace. The shopping center market recorded nearly 9.8 MSF of occupancy growth in Q4 2015, bringing annual net absorption for 2015 to nearly 39 MSF. This is below the 47 MSF of occupancy growth posted in 2014 but well above the 33 MSF of annual absorption that the market has averaged since the current expansion phase began in 2010.
Below are just some of the other key findings presented by our Snapshot. You can also download the full report with far greater insight and context into these and other very pertinent topics impacting retail. There is also key market-by-market statistics, trend graphs and other valuable information.
User Demand White Hot for New Class A, Premium Space
- New product continued to be a major driver of occupancy growth. The vacancy rate in new projects delivered in 2015 was roughly 7.5% at year end.
- User demand remains white-hot for new, Class A or premium space with most tenants willing to pay a premium for quality product even where affordable Class B or secondary locations may be available at considerably lower rents.
- Over half of the new development that we tracked in 2015 was in the form of expansions of existing shopping centers, typically in dominant Class A projects.
A New Retail Paradigm and the Barbell of Prosperity
- Retailer demand is now driven overwhelmingly by two major factors: the barbell of prosperity and the impact of e-commerce and technology.
- Both luxury retail and discount/off-price retail have driven net absorption for hard goods retail.
- Prime urban retail districts have experienced declining vacancies and climbing rents as new luxury and fast-fashion concepts (both foreign and domestic) continue to seek high street locations.
- The real growth numbers have come from discounters and off-price concepts.
- Middle-class consumers have yet to return to their old spending patterns, despite rising incomes and declining debt.
The Impact of E-Commerce and Closures Ahead
- By offering goods at lower prices, e-commerce has sharply impacted retailer growth patterns.
- The first quarter is typically when retailers close underperforming stores. This is usually driven by the typical life cycles of retailers and holiday sales performance often plays into these decisions.
- 2016’s “normal” life-cycle closures will be augmented by an increasing number of retailers “right-sizing” their bricks-and mortar footprint for e-commerce.
A “Have” Vs. “Have-Not” Marketplace
- Thanks to seemingly contradictory occupancy growth trends, the market has increasingly become bifurcated.
- There is a shortage of Class A space in most U.S. markets (a factor driving construction); 75% of the national vacancy is concentrated in Class B or C product.
Again, if you are interested in learning more about these topics plus our projections for the outlook ahead for shopping centers in the U.S. and other relative trends, you can download a free copy of the Snapshot here. Feel free to contact me with any questions about the report.
Garrick serves as Vice President of Retail Research for the Americas. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.