BY THE NUMBERS WITH
By Thomas P . LaSalvia , Ph . D .
RETAIL RESILIENCE
In-store shopping isn ’ t going anywhere , even if e-commerce will continue to grow .
The apocalypse was supposed to be upon us . A combination of pandemic-induced lockdowns and the growing competitive presence of e-commerce would bring obsolescence to the brick-and-mortar shopping experience , right ? Vacancy rates would rise , and rents and property values would tumble . The saving grace for owners would be repurposing , but even that was shrouded in uncertainty due to the necessity of large capital infusions and the presence of restrictive zoning laws .
Fast forward 18 months and it comes as a surprise to many that the apocalypse has been canceled . The retail sector of commercial real estate is holding steady . The vacancy rate , while slightly elevated from its long-term average of about 10 percent ,
U . S . Retail Performance
Net Absorption ( in million sf )
20
15
10
5
0
-5
-10
Net Absorption
Source : Moody ’ s Analytics Reis * First half 2021 is now hovering around 10.5 percent and is even showing signs of trending downward . This steadiness is due to both the demand and supply sides of the equation . While net absorption declined a bit during 2020 , the level of stress pales in comparison to the sector ’ s experience during the Great Financial Crisis more than a decade ago . On the supply side , inventory growth for retail has slowed considerably during the last 18 months and even prior to the pandemic . Due to uncertainty surrounding the sector , developers have proceeded with caution over the last few years , and this has undoubtably helped prop up performance of existing properties while buoying optimism for the sector .
While steadiness at the national level is certainly a positive , we are not so naive as
Vacancy Rate
2006 2007
2008 2009
2010 2011
2012 2013
2014 2015
2016 2017
2018 2019
2020
2021 *
12 %
10 %
8 %
6 %
4 %
2 %
0 %
Vacacy Rate to suggest that headwinds do not exist , or that all assets will perform equally in the coming years . E-commerce has slowly but surely become a greater presence in our society and will undoubtable place negative pressure on the sector . The e-commerce share of total retail sales has increased from about 1 percent at the turn of the century to its current level of a shade over 13 percent . It ’ s also interesting to note that the level peaked at only 15.7 percent during the COVID-19 lockdowns . Yes , some malls were closed , and a smattering of households ordered their groceries online for the first time , but overall , people still found their way to brick-and-mortar retail as needed .
As the pandemic has waned , especially during the spring and summer of this year , shoppers , many flush with stimulus cash , enthusiastically embraced in-person experiential retail ( including eating and drinking establishments ). But that wasn ’ t all — sales figures show an uptick in apparel and department store spending . Consumers were buying products in person that they could have been purchased online . This certainly has given brick-and-mortar retailers hope that shopping habits may not have permanently shifted . With this said , we still expect e-commerce ’ s share of the market to increase , likely to 20 percent by the end of this decade , but the growth path is likely not as severely sloped , and the equilibrium level may not be as significant as many once thought .
Still , laggards do exist in the retail industry , which have ramifications for asset performance . A common occurrence during economically difficult times is an acceleration of the clearing out of struggling firms
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE FALL 2021