CHICAGO-Though some sources of uncertainty hindering spending will go away in 2013, Jones Lang LaSalle’s 2013 National Retail Real Estate Outlook doesn’t predict a whole lot of improvement in retail commercial real estate in the coming year. Despite continued stable pricing and pent-up demand for non-durable goods driving consumer spending slightly, uncertainties continue to exist in buyers’ minds.

The general election is behind us, and the report assumes that Congress will act to avert the pending fiscal cliff. Even so, risks to retail sales will include a potential spike in energy prices, natural disasters, geopolitical instability worldwide and shifts in buying patterns and online purchasing.

As a result, retail real estate fundamentals suggest that overall occupancy and rental rates will stagnate. Though some retailers will expand aggressively, there is a concurrent trend toward smaller store footprints. And as some chains vacate big box spaces or close altogether, off-price department stores and other retailers will seize upon those opportunities to backfill the space.

Retail trends anticipated for 2013 include:

  • New store openings — retailers will open as many as 78,325 stores in the next two years, up 11% from year-end plans in 2011.
  • Outperformance of non-durable goods – these will outperform throughout 2013 with a marked improvement expected in the second half, reflecting stable core prices (excluding food and energy).
  • New construction — construction will add 52 million square feet of space in 2013, more than double the 20 million square feet completed in 2012.
  • Stores within stores — more retailers are opening stores-within-anchors: Target has added Apple displays and small shops; J.C. Penney operates mini-stores such as Mango and Sephora and plans hundreds of in-store shops while Finish Line plans to open 450 stores inside Macy’s.
  • Online competition — to better compete with online sellers, retailers including Wal-Mart are experimenting with same-day delivery in some markets.

“2013 will be a year to separate the wheat from the chaff,” said Greg Maloney, Jones Lang LaSalle’s Americas Retail President and CEO, in a press release. “Property subtypes, markets and retailers that are doing well now will continue to strengthen their position, while those that are weak and struggling will stumble along or fail entirely.”

There is good news on the consumer front, however. As households continue to reduce debt and inflation remains low (coupled with mild weather that will hopefully reduce energy costs), consumers are anticipated to increase spending at restaurants and on staple goods like apparel and footwear through mid-year. It’s also anticipated that sales of new and existing homes will increase in 2013, which will drive purchase of furniture and appliances. Weather and disaster-related preparation and repairs may also drive spending.

“Household balance sheets are in a much better state than before the financial crisis, and wealth appreciation in the stock market has helped to boost confidence and supports some retail purchasing, especially as goods need to be replaced by necessity,” Maloney noted. “Yet while other indicators are turning positive, sluggishness in the labor market will have a reverberating impact on the retail sector, keeping occupancy and rent growth rather muted.”

Though consumer spending will uptick slightly in 2013 . . .
Sluggish job growth will continue to taint the retail picture next year.