CBRE found an interesting dynamic in retail rent growth. On one hand, U.S. downtown markets had on average 88-basis-point higher availability rates than suburban markets in 20204’s third quarter. It’s the largest spread since the firm started collecting data in the early 2000s.
That would suggest a disparity that favored suburban markets, including retail. The ongoing impact of remote work means people remain closer to home. As a result, suburbs have lower availability rates, so they should be doing better because there’s more demand for the retail space there.
However, in a deeper dive, CBRE EA found something more complicated. They looked at four different types of areas. Prime business is downtown districts that have a mix of retail and prime/trophy office buildings. Vibrant mixed-use districts are mixes of urban residential, entertainment, street retail, and prime office. Non-prime business districts have no prime office space but have limited space availability. Then, there are mixed-use districts with no prime office space and more open availability.
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The best-performing retail rent growth rates by five-year compound annual growth rate were in the prime-business (top) and vibrant mixed-use (second-to-top) districts, respectively, nearly 10% and almost 9.5%. Non-prime business was close to 8.5%. Break even was just under 8% and plain mixed use was slightly over 7%.
In a separate report in early December, CBRE looked at forces shaping retail. The more active sectors, as repeated in this newer report, saw greater success from low availability rates, high rents, and significant development activity. They noted that retailers and investors should target locations in and adjacent to these areas.
Also benefiting retail are generally low retail stock given demand. They said there is a lack of about 200 million square feet of retail space, or 5%. The need is greatest in Austin, Orlando, and Nashville.
Another factor dovetailing into the new report is that consumers are favoring dense retail clusters, whether talking about cities or suburbs. High-street foot traffic is the strongest it has been since 2022. The CAGR retail rent growth of 3% was stronger than the 2.1% CAGR of the broader market. The largest spreads were in Dallas, Los Angeles, and Manhattan.
The big generational drivers behind 2025 spending are expected to be Millennials and Gen-Z. “They also are most likely to take on debt to spend in the near term, with 36% of Gen-Zers and 39% of millennials ‘very likely’ or ‘somewhat likely’ to do so, compared with 31% of Gen Xers and 20% of Baby Boomers.”
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