Retail Demand Could Go Positive in 2011

NEW YORK CITY-The retail sector’s availability rate is predicted to drop to 12.7% by the end of 2011, with CBRE Econometric Advisors forecasting that demand will turn positive for the first time since 2007, GlobeSt.com has exclusively learned. However, rents won’t start growing at historical levels, i.e. 3% or more, until 2013.

“I still feel that we’re in a tenuous recovery for the consumer,” economist Abigail Rosenbaum with CBRE-EA tells GlobeSt.com. “Certainly it’s been a healthy one in 2010, one that we wanted to see and expected to see. But unemployment continues to be high. Job recovery has been going along, more recently at a slower pace. However, consumers feel that things are okay enough that they can go out shopping again.”

That being said, any sort of “shock” could put a damper on that confidence. While a double-dip is not in the forecast and CBRE-EA doesn’t expect unemployment to rise much higher, “any sort of uncertainty that the consumer feels could derail that recovery,” says Rosenbaum.

After 17 consecutive quarters of increases, the availability rate for retail dipped 10 basis points to 13% during the third quarter, and CBRE-EA expects the demand for neighborhood community centers that began in the third quarter will continue. But Rosenbaum points out, “Consumers are spending again, just not at the pace that they have during the recovery from previous recessions. So it’s going to be slow going. It will be a positive story, but it’s a question of momentum.”

CBRE-EA’s analysis finds that while retail sales in general are coming back, the online sales market continues to challenge to the need for expanding brick-and-mortar space. As to whether the surge in online retailing waxes and wanes as holidays come and go, Rosenbaum offers, “We look at it in terms of year-over-year growth; that way you’re comparing apples to apples. From that standpoint it has been quite strong: double-digit year-over-year growth each month since last November.”

Electronic retailing did suffer along with the rest of the sector during the worst of the downturn, but since then has roared back. All in all, says Rosenbaum, “The 2010 holiday shopping season is going to be quite indicative, and hopefully give us a concrete sign that the consumer is moving ahead.”

The analysis also points to a move toward urban locations; Rosenbaum doesn’t see this necessarily occurring at the expense of suburban centers. She says the shift toward urban locations is more a case of “new space development,” with the drag on suburban vacancy having already occurred during the recession.

“I don’t think it’s necessarily one or the other; they’re looking beyond suburban centers—still keeping the suburban areas and stores that they have, but possibly growth potential is in the urban areas as well,” she says. And while it’s hard to talk about construction when so little construction is going on, retailers are looking at smaller stores, “and certainly the notion that they want to go into urban areas goes along with the idea of smaller stores.”

So too does a burgeoning trend toward merging lifestyle and outlet centers. “There isn’t enough yet to say it’s a long-lasting trend, but there could be some fusion of certain types of retail centers, and repurposing of space in centers that are already there,” Rosenbaum says.

That could mean retail landlords subdividing vacant big-box locations in power centers to accommodate tenants with smaller footprints. “It’s a question of trying to make the most of the space that they have vacant right now,” she says.