- Leasing activity in the U.S. retail sector has been concentrated in spaces smaller than 2.5 KSF this year.
- New construction is primarily focused on single-tenant build-to-suits and smaller spaces in mixed-use developments.
- Retail tenants absorbed 7.2 MSF of space in Q2, up from 4 MSF in Q1, although overall demand has slowed down YoY.
According to a new Colliers report, U.S. retail growth is mostly being driven by smaller tenants leasing stores in shopping centers.
This year, retail leasing activity has been dominated by spaces smaller than 2.5 KSF, with quick-service restaurants and personal services leading the charge, as reported on Bisnow.
Zooming Out
“Most new construction focuses on single-tenant build-to-suits and smaller spaces in mixed-use developments, while obsolete spaces, especially in underperforming malls, continue to be demolished,” said Nicole Larson, Colliers National Research Manager for Retail Services.
These conditions are positioning smaller retail tenants to capitalize on high demand and limited supply, thus driving market growth.
By The Numbers
In Q2, tenants absorbed 7.2 MSF of retail space, up from 4 MSF in Q1. However, this is a slower pace compared to last year, when tenants absorbed 13 MSF more than they vacated.
The slowdown is partly due to the lack of new retail center developments and limited available space, with vacancy rates at a record low of 4.1%.
At the end of Q2, shopping center asking rents averaged $33.61 PSF, up 3.3% from the same period last year.
Despite ever-high interest rates, U.S. store openings outpaced closures by 20% in 1H24, according to Coresight. This growth correlates with a surge in dining out, as food and beverage tenants now make up 20% of all retail leasing activity.
Brands like Crumbl Cookies, Starbucks, KFC, Pizza Hut, Taco Bell, Burger King, Popeyes, and Firehouse Subs have all been adding more locations.
Meanwhile, experiential chains, including Planet Fitness and Urban Air adventure parks, represent nearly 15% of leasing activity.
What’s Next
“As we move into the second half of 2024, the U.S. retail market is poised to continue its cautious yet opportunistic path,” Larson wrote in the report
Retailers and investors must stay vigilant, adaptable, and forward-thinking to navigate ongoing economic changes and capitalize on emerging (but potentially short-lived) opportunities.
