Latest U.S. Retail Market Outlook Shows Sector’s Growth Has Slowed To ’Low Water
Blame for the “non-recovery” can be laid largely at the feet of technology companies and non-traditional retailers, whose disruption of traditional brick-and-mortar has continued unabated – most spectacularly with Amazon’s purchase of Whole Foods. The impact of headwinds created by consumers’ shift to e-commerce, and the uncertainty it has created, cannot be overstated. Ten-X Research expects the sector to wrestle with these challenges for years to come.
The long-term forecast suggests investors should consider buying retail assets in Austin, Denver, Dallas, Salt Lake City and San Jose. These markets, clustered largely in the Southwest, have been able to defy the forces working against retail thanks to expanding populations, job and wage growth, and increasing shopper counts.
Kansas City, Memphis, Cleveland, Northern New Jersey and Pittsburgh are the top markets in which investors might consider selling retail properties. These cities face adverse retailing conditions due to either economic struggles or the double whammy of slow population growth and high rents.
The Ten-X Research report notes that e-commerce – the sector’s most formidable secular challenge and risk factor – continues to grab a larger share of shoppers’ spending. It now comprises 14.4 percent of total non-auto retail sales, up from less than 10 percent five years ago. With more people shopping from the comfort of home, in-store inventory needs have declined. Consumers are still shopping, but more sales are being fulfilled from warehouses while retail’s per-person footprint continues to shrink. As a result, the warehouse and distribution sector has been the beneficiary of e-commerce’s hegemonic rise.
“The rise of online shopping puts extreme pressure on the recovery of the retail sector, demonstrated most clearly by bankruptcies of storied retail chains, sweeping store closures, and shrinking footprints,” said Ten-X Chief Economist Peter Muoio. “For now, the sector is being sustained by strong economies and high incomes in some regions around the country but it faces the risk of stagnation should an economic downturn strike.”
Effective rents rose 1.8 percent in the second quarter from a year ago, a growth rate unchanged from the first quarter of the year. Vacancies ticked up by 10 bps to 10 percent and have now risen 20 bps over the last year. Overall deal volume in the sector sagged to a 4-year low of $14.6 billion.
2Q 2017 – 2021 U.S. RETAIL PROJECTIONS
Top 5 Buy
Change in Rents
Salt Lake City, UT
San Jose, CA
Top 5 Sell
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