While office struggled, multifamily cooled, and industrial experienced highs and lows, retail remained resilient. Now, despite a recent slowdown in demand, the sector continues to demonstrate its enduring appeal and adaptability.
However, mixed signals persist. While consumers are generally positive about the labor market, they are troubled by elevated prices and higher interest rates. Many believe that economic uncertainty will continue in the near term, with recovery not expected until sometime next year.
Consumer spending remains the backbone of the economy, and despite current economic headwinds, buyers continue to increase their spending with year-over-year retail sales growing by 2.9% during the first half of 2024. While the growth rate is similar to pre-covid levels, it has decelerated slightly compared to last year’s rate of 3.6%. The forecast calls for 3% growth year-over-year by the end of 2024, as most households remain cautious with discretionary spending. A major concern is the increase in consumer debt, with U.S. credit card debt balances exceeding $1.05 trillion at the end of July — a 7% increase year-over-year.
2.9%MID-YEAR RETAIL SALES GROWTH |
3.0%YEAR-OVER-YEAR GROWTH FORECAST |
Asking rents have continued to experience moderate growth across many markets, with San Francisco and the Peninsula being the only areas showing year-over-year declines. Additionally, retail foot traffic trends illustrate a recovery in suburban markets during 2022, while urban cities lagged behind by approximately 8-12 months. As a result, well-located centers and suburban markets have generally outperformed enclosed malls and downtown urban centers, a trend that is expected to continue in the near term.
Meanwhile, retail demand, leasing activity, and net absorption are all on track for a lackluster year. These metrics are below pre-pandemic levels and have slowed during the first half of 2024. Combined, West Coast markets produced negative net absorption for two consecutive quarters in 2024 (negative 4.2 million square feet year-to-date), the first time this has occurred since the first two quarters immediately post-covid.
However, the recent slowdown in new construction activity will have a positive effect on the retail market in the near and mid-term. Construction starts have decreased by nearly 60% across West Coast markets, leading to a drop in development and future deliveries. This decline is in part due to muted retail demand as well as the high cost of development, which is expected to persist in the near term.
With little new supply on the horizon, the forecast anticipates steady but subdued activity with moderate levels of net absorption and deliveries, and flat vacancy rates over the next 6-8 months. The retail market is well-positioned for a breakout once the economy shows sustained growth, elevated retail prices subside, and consumer confidence recalibrates.
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BRIAN HATCHER President & COO brian.hatcher@kidder.com 206.296.9600 |
GARY BARAGONA Vice President, Research gary.baragona@kidder.com 415.229.8925 |
The information in this report was composed by the Kidder Mathews Research Group.
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