Nuggets From Cushman’s Shopping Center Update
As one of the largest commercial real estate brokers in the country, Cushman & Wakefield’s research arm is a treasure trove of great insight, especially in the retail world. In its Q2 2017 U.S. Shopping Center Marketbeat, C&W predicts an increase in retail closures over 2016, with retail bankruptcies and consolidations magnifying the impact of e-commerce and other seismic shifts.
“The number of store closures so far this year is on track to exceed that of last year, which has escalated concerns about the fate of bricks-and-mortar retail and even prompted use of the term ‘retail apocalypse’ across media outlets,” the report reads.
As average commercial rental rates continue to increase, the overall vacancy rate is tighter than ever, near record lows—which is no surprise to any franchisees or franchisors in the market for desirable space in similarly desirable markets.
Because the majority of chain store closures have been department and apparel stores, Cushman’s report outlines that malls and strip centers have been bearing the brunt of the impact of the current, stressed retail environment. Because many of these individual units are large stores—think Sears, American Apparel, Macy’s—this hasn’t translated into boatloads of available space, as landlords must invest and get creative to break massive stores into smaller, more modern retail spaces many brands covet.
“Further consolidation in [general merchandise, apparel and accessories, furniture and other sales] is expected to continue for the next year or two, particularly among the mid-price level concepts, which are not only facing an increase in competition from Amazon and the internet, but also discount retailers,” it said.
At the current pace, “Amazon will surpass Macy’s as the largest apparel retailer in the U.S. within the year” it continued. Is there any industry outside QSR that’s immune to the Amazon Effect at this point?
The report notes that non-mall vacancy has been trending downward since 2010, when it peaked above 10 percent. That number stands at 7.1 percent now, down from 7.4 percent a year ago.
Bright spots in traffic were found in the office supply and sporting goods categories, as well as neighborhood centers anchored by grocery or pharmacies.
While Cushman’s previous reports weren’t positive, recent news in the retail world led the company to revise its previous prediction of 5,000 retail closures in 2017 up to “at least 8,000”—meaning this year will be one for the record books as brick-and-mortar retail continues what could be a prolonged retraction in the U.S.
There are many, many more nuggets in the latest Marketbeat, and I’d recommend anybody following or actively engaged in finding retail space to read up and follow Cushman’s blog to understand where the market is heading. The latest report makes it very clear: there is no smooth sailing currently in the forecast. Buckle up.