Skip navigation
retail opening sign Andriy Blokhin / Alamy Stock Photo

In Spite of Worries About Inflation, Downturn, Retail Leasing Has Thrived This Year

Data from Coresight Research shows store openings are outpacing store closings so far this year. Retail brokers hope leasing trends will stay strong.

Strong consumer spending over the past year has prompted retailers to open more stores than they closed. But concerns about rising inflation and the economy this summer have led some to hit the pause button on expansion for now, according to retail analysts.

The U.S. retail sector remains strong, as reflected in the latest store opening numbers from data firm. Coresight Research. And only one of six analysts contacted by WMRE has suggesting tough times ahead for the sector.

Through the first six months of 2022, there have been 4,328 announced store openings and 1,912 announced closures, Coresight reports. U.S. retailers have announced 1.9 percent more openings and 58.1 percent fewer closures compared to the same time last year, the firm notes.

Discount chains represented 45 percent of total store opening announcements year-to-date, while apparel retailers accounted for 33 percent of closures, according to Coresight.

There was additional good news on Friday, when the Commerce Department reported retail sales rose by 1.0 percent in June after a decline in May had prompted concerns that inflation was taking a toll on consumer confidence.

Overall, retail sales in June were up 8.4 percent year-over-year and 18.0 percent higher than pre-pandemic, giving retail brokers and analysts optimism despite any pause some retailers are placing on openings.

Two months ago, the amount of retail leasing activity around the country was “absolutely enormous” and “like nothing that’s been seen in a long time,” says Andy Graiser, president of real estate advisory firm A&G, which specializes in lease optimization. In recent weeks, however, those companies that were expanding and growing started “slowing it up a little bit” over concerns about consumers having to spend more on gas and groceries, he says.

There’s a disconnect between retail executives at the C-suite level and real estate professionals working on leases, Graiser notes. Those in the C-suite are concerned about preserving cash, getting through the holidays and dealing with excess inventory.

“There’s still a lot of positivity out there and a lot of action, however, as these deals go to their real estate committees led by their CEOs, they’re not rejecting all of them, but (selecting) the (best) ones,” Graiser says. The amount of cash needed t build out a store is now about 40 to 50 percent higher than it was pre-pandemic, leading to concern about preserving cash, he notes. As a result, some retail CFOs want to proceed more cautiously. “It’s not to say they’re not going to open stores, but they will do less of them. I think that has not hit the landlord community yet, but it will.”

Retail landlords may not feel the impact from the slowdown until the end of the year and even then it won’t be dramatic, according to Graiser. But “it’s clearly going to have an impact.”

Similarly, Jeff Arsenault, a principal with Avison Young who co-leads the firms retail brokerage group globally, says that the retail sector in the fourth quarter of 2021 and the first quarter of 2022 was “off the races.” But storm clouds have developed amid rising inflation, setting off a panic among retail space occupiers, he notes.

“What I have seen over the last 60 days is certain categories starting to hit a pause button for third quarter openings or store identification,” Arsenault says. “Boutique fitness and restaurant operators are taking a little step back and hitting the pause button a bit through July and August. They want to see how things are looking in September and what the long-term prospects look like over six to nine months, and then we will reassess and go from there.”

Not everyone is seeing that scenario play out.

Michael Mason, executive managing director of retail occupier services with commercial real estate firm Newmark, says he hasn’t come across any signs of softening in leasing demand yet. Retailers are growing in targeted markets and high demand has driven rents up in established areas. It’s in the tertiary and more rural markets where rents have been slower to recover and deals are more difficult to be had, he notes.

In fact, 2022 has been the first year when store openings have surpassed closings since 2016, according to Alanna Joy Loeffler, managing director, business strategy, Americas retail services, with Cushman & Wakefield. Last year, the ratio was about flat. In the second quarter of 2022, the average vacancy rate for shopping centers nationally fell to 6.1 percent, which is below 2019 numbers. Rental rates have grown by more than 5.0 percent compared to last year, Loeffler says.

“These measures suggest the retail market is the strongest since the 2007 to 2009 Great Recession,” she notes, adding that her team is working with brand who are still expanding, but which can’t be revealed. “It’s an exciting time. We’re seeing spending remain strong. We think the rest of the year will remain strong for retail.”

There are several types of retail businesses that are growing.

There are people who lost jobs or left their jobs during the pandemic, launched e-commerce businesses and are now looking to open bricks-and-mortar outlets. Some e-commerce sites are backed by capital partners who understand physical locations are an important sales channel to reach more customers, Loeffler says. In addition, some retail chains are looking at store format changes, such as creating a showroom setting and becoming more experiential, she notes.

Brandon Isner, head of retail research for the Americas with real estate services firm CBRE, attributes the current retail leasing momentum to the pandemic in 2020 holding back industry expansion. As a result, healthy retailers have a lot of catching up to do.

“If you go by Mastercard data, in-store sales growth has been outpacing e-commerce for some time,” Isner says. “Not to say that e-commerce is going away. It’s not. People have realized and retailers have realized that the store remains an essential part of their business. Primarily being an e-commerce company is expensive, so having a store is an active part of the supply chain where the omnichannel retail experience can really thrive.”

Even though e-commerce served a valuable purpose during the pandemic, any suggestions that bricks-and-mortar was going away was shortsighted, Isner says. Even changing workplace patterns are helping retail in his view. With white collar workers having more location flexibility, often retail spaces such as a restaurants or cafes can act as an alternative workplace to the home and the office.

How much space?

Coresight Research estimates that the 4,283 announced store openings as of June 24th would result in demand for approximately 73.2 million sq. ft. of new retail space.

In its latest second quarter research, CBRE reports that 19.9 million sq. ft. of retail space absorption was driven by net openings of more than 2,500 stores through the quarter, marking six consecutive quarters of positive absorption.

This is happening as the retail development pipeline remains stagnant, with retail developers fighting not only high construction costs, but also heightened competition for resources via highly active industrial and residential sectors, Isner notes. The U.S. has seen shrinking retail development since 2008.

“It’s finally to the point where a lot of our market brokers are having to tell their clients who are in expansion mode that they have to be patient because there’s no new space to move into,” Isner says. “There’s such a flight to quality that the prime spaces are few and far between in availability.”

Availability of retail space in the 64 markets CBRE tracks has fallen to 5.1 percent, which is at least a 10-year low, according Isner. The most desirable markets are currently located in the Sunbelt and other places where people have been migrating to in recent years.

In the second quarter, average retail rents rose by 2.4 percent year-over-year—the highest increase of its kind since the first quarter of 2017, Isner notes.

Who’s expanding?

As for what types of retailers are opening or closing stores, dollar stores and discount retailers are expanding along with fast casual and franchise food establishments, which are “on aggressive growth patterns,” according to Mason. Footwear, apparel and fast fashion retailers, on the other hand, have closed stores and consolidated portfolios, he adds.

Graiser says his firm is seeing positive leasing activity among restaurants, discount retailers that often serve as junior anchors such as Burlington Coat Factory and TJ Maxx, dollar retailers and big-box retailers that have been trying out smaller store concepts.

Some additional categories that continue to see expansion are boutique fitness studios, urgent care clinics and doctor’s offices that are taking retail spaces, according to Arsenault. Quick-serve restaurants are also looking for new spaces in markets they are lacking a large enough presence.

At the same time, there are department stores that have failed to keep up with merchandising trends and are closing some locations in class-C malls. “That’s not to say there isn’t a place for those department stores,” Arsenault notes. “Macy’s isn’t going anywhere. Some of them are closing C locations and trimming the fat out of their portfolio.”

Coresight Research reports that Macy’s announced 59 store closures in 2022. CVS led the way with 300 store closings, followed by Alimentation Couche-Tard with 152 stores. The others in the top 10 for store closings include Foot Locker (119); Rite Aid (114); Sears Hometown (101); Sally Beauty (100); Signet Jewelers (99); American Eagle (83); and Michael Kors (64).

Amazon came in at 11th place for store closings with 57 stores.

Other chains closing stores include The Gap, Family Dollar, Burlington Stores, H&M, Dollar General and Dollar Tree.

At the same time, Dollar General has led the way for announced store openings, with 1,102, followed by Family Dollar with 393 stores. Dollar Tree announced 206 openings. The others in the top 10 for openings include Aldi (150); Five Below (147); TJX Companies (133); Burlington Stores (113); Signet Jewelers (100); Ross Stores (97); and Wawa (93), according to Coresight Research.

Bankruptcy outlook

Graiser is not expecting a bump in sudden retail bankruptcies this year, as the industry just rid itself of the weaker players during the pandemic. He expects that most store closings will be connected to expiring leases that will not be renewed.

Whatever bankruptcies do occur this year, they will likely involve more small-to-midsize retail operators rather than any large chains, Graiser says. Many of the larger players have a lot of availability in their asset-based lending facility that should help cushion them against any market shocks and get them through this year. If there is a recession in 2023, that outlook could change.

One analyst who’s the most pessimistic about what’s ahead for the U.S. retail sector is Spence Mehl, a principal with RCS Real Estate Advisors. He notes he has clients that have curtailed a number of openings planned for next year after “feeling a lot more giddy” six months ago. While retail sales rose dramatically in 2021, fears about inflation, potential recession and personal savings make retailers question whether that growth will be sustainable going forward, Mehl says.

“We’re not seeing a lot of store closings right now, but I think that’s going to change over the next six to 12 months,” he says. “There’s been a lot of free money (over the last 12 months), and I think the consumer is going to gravitate away from non-necessities. Inventories are very high with the stores right now, and if you have a large big-box chain store in trouble, with a lot of square footage out there, that can have a detrimental effect on the entire market.”

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.