NEW YORK CITY — Despite a rash of bankruptcies and store closures by major retailers during the first quarter of 2017, the U.S. retail market overall is quite healthy, according to a report by Reis, a New York-based commercial real estate analytics firm.
To gather its data, Reis tracked multi-tenant neighborhood and community shopping centers of 10,000 square feet or larger in 77 primary metro areas throughout the United States.
Last week, Payless ShoeSource became the 10th retailer to file for Chapter 11 bankruptcy so far this year, according to CNBC. Others include Gander Mountain, BCBG Max Azria, Wet Seal, Limited Stores, Gordmans Stores, hhgregg, Eastern Outfitters, RadioShack, General Wireless Operations and Michigan Sporting Goods Distributors.
Aeropostale also closed nearly 600 locations in 2017, while Sports Authority gave back 460 storefronts after its liquidation. Macy’s, JC Penney and Sears are undertaking additional store closures
Despite the headline-grabbing stories that would imply retail is struggling, Reis reports that the vacancy rate held steady at 9.9 percent during the first quarter of 2017 — identical to both the previous quarter and previous year.
Both asking and effective rents increased as well. Asking rents rose to $20.55 per square foot, an increase of 0.3 percent over the preceding quarter and 1.6 percent over first-quarter 2016. Effective rents followed suit, rising to $17.96 per square foot, which represents a 0.4 percent increase over the prior quarter and 1.7 percent increase over the prior year.
Additionally, the retail and restaurant industries added 383,600 new jobs, a growth of 1.4 percent over one year prior, the report notes.
Reis retail statistics, Q1 2017. Click to view larger.
The flip side of that coin — which is helping to keep the vacancy numbers and rents in check — has been the sluggish pace of new development. At 796,000 square feet, new construction starts in the first quarter hit their lowest rate since 2011. For comparison, new construction totaled 2.6 million square feet in the fourth quarter of 2016 and 2.2 million square feet in the first quarter of 2016.
Meanwhile, total absorption in the first quarter fell over the previous quarter and year. However, absorption was still positive, meaning that new retailers are gobbling up the spaces left by the high-profile closures. The first quarter of 2017 saw 1.2 million square feet of retail absorption, compared with 3.5 million square feet in fourth-quarter 2016 and 3 million square feet in first-quarter 2016.
“Many have lowered their expectations for the retail real estate industry given the one-two punch of the rise in e-commerce and the closing of stores. But a number of retailers have expanded their presence in malls and other shopping centers,” says Barbara Byrne Denham, senior economist with Reis. “We remain cautious but do not want to overstate the problems in the retail industry.”
Metro-by-metro analysis
While the overall vital signs of the retail market are good, the performance can vary greatly between individual markets and subsets of retail.
For example, although rents increased across the country, within 19 of the 77 tracked metros asking rents declined. This includes mostly smaller metros, with the exception of Minneapolis, Seattle and San Francisco. Metros that saw the highest growth in effective rent include San Jose, Denver, Salt Lake City, Oakland and San Antonio.
While vacancy held steady across the country, 25 of the 77 metros saw vacancy increase from the previous quarter, and 28 saw an increase from the previous year. Those with the highest increase in vacancy in first-quarter 2017 include Greenville, S.C.; Lexington, Ky.; Little Rock, Ark.; New Haven, Conn.; and St. Louis, Mo.
Vacancies declined the most in Oklahoma City, Salt Lake City, Ventura County, Calif., and Cincinnati.
For the full report, or market-specific versions, visit reis.com
— Jeff Shaw and Nellie Day