Mid-Year Retail Trends 2024: Navigating a Complex Landscape
As we reach the midpoint of 2024, the retail real estate sector’s fundamentals are as strong as ever. Global occupancy for necessity-anchored shopping centers are at an all-time high, with over 92% occupancy rates. Tenants’ sales continue to grow and consumer confidence remains strong. At Broad Reach Retail Partners, our expertise in transforming shopping centers into thriving community hubs gives us unique insights into these trends. Here, we explore key mid-year retail trends and their implications for property owners, investors, and tenants.
High Occupancy Rates and Tenant Demand
Retail properties are thriving, with most necessity-anchored shopping centers achieving occupancy rates of 92% or higher. This high occupancy level underscores the attractiveness of well-located and well-managed properties. However, the limited availability of space for new leases presents a challenge for tenants looking to expand or enter new markets. This is putting upward pressure on rents and providing opportunities to create value. Additionally, this pressure is creating the opportunity for new development.
Leasing Dynamics
Retailers are hungry for space, but also report that the cost of goods sold (COGS) and the availability of labor are affecting their profitability and decision-making processes. This is pushing retailers to be more aggressive with their demands and specific criteria when signing a lease to combat these challenges. Overall, deals are taking a long time from the letter of intent (LOI) to lease execution.
Rising Construction Costs
The cost of construction has significantly increased in the past 5 years, now exceeding $225 per square foot on average compared to $160 per square foot in 2019. Although construction costs remain elevated, the availability of most materials has returned to pre-pandemic levels. As mentioned earlier, tenant demand and upward pressure on rents are starting to legitimize new development opportunities.
Capital Markets and Acquisitions
The current state of the capital markets remain choppy, properties are available for sale, but sellers continue to demand low cap rates and are often unattractive to buyers when they factor in high debt costs. Lenders are present but offer high interest rates and lower loan-to-value ratios, making it difficult to secure favorable financing terms. Despite plenty of equity in the market, high seller pricing expectations and challenging debt markets continue to hinder transaction volumes.
Conclusion
The mid-year retail trends of 2024 highlight both opportunities and challenges within the sector. High occupancy rates and strong tenant desire to lease demonstrate the market’s resilience, while rising construction costs and complex capital markets require strategic navigation. At Broad Reach Retail Partners, our experience and innovative approach position us to succeed in this evolving landscape. As we move forward, we remain committed to creating value and delivering exceptional results for all our stakeholders.
Why Broad Reach Retail Partners?
At Broad Reach Retail Partners, we specialize in navigating these complexities. Our comprehensive experience in retail real estate, from ground up Development, leasing, property management and acquisitions, has created value on 65 Shopping Centers representing 5.9 million square feet! We remain committed to Navigating the Future of Retail Real Estate.
For more insights and to learn more about what we do, visit Broad Reach Retail Partners.