The U.S. retail sector has posted record sales in six of ten core retail categories for March, reflecting continued prioritization of necessities, discounted items and experiences. However, the pace of sales growth has been decelerating, likely due to persistent inflation, economic uncertainty and significant shifts in U.S. trade policy, according to a Marcus & Millichap report.
For the first quarter, core retail sales increased 0.6% but dipped slightly, by 0.1%, when factoring in core CPI inflation, said Marcus & Millichap.
The food and beverage category has accounted for a 27% share of all store-based retail sales for more than two years, and the report said this is expected to continue as households prioritize necessity items. As a result, demand for supermarket space will likely remain elevated among expansion-minded grocers, although opportunities to increase market share may be limited. The report noted segment vacancy was 2.2% at the beginning of April, which is a good sign for shopping center owners with supermarket anchors.
“As the U.S. economy faces potential risks of simultaneously higher inflation and slower growth, a more cautious consumer is likely to materialize,” said the firm. “Fortunately, the retail sector is well-positioned to handle possible spending-related headwinds, as vacancy was historically low entering April.”
The largest year-over-year spending increases during the first quarter were within the miscellaneous retail and non-store categories, which Marcus & Millichap attributed to consumers visiting used merchandise stores and online avenues in search of discounts. Many shoppers are also frequenting general merchandise stores, which is motivating off-price retailer expansion, according to Marcus. Ollie’s Bargain Outlet, Ross and Burlington are poised to be among the fastest-growing brands this year, as each plans to open between 75 and 100 stores.
Amid a cautious spending environment, discretionary segments, including restaurants, could experience software sales, but the dining sector has remained strong with spending at restaurants and bars climbing 1.8% month over month in March. This is notable as away-from-home food prices rose 0.4% during the month.
“Restaurants that can source North American ingredients should avoid the worst menu-related cost pressures from tariffs,” said the report.
Overall, retail is likely to remain among the most attractive segments of the commercial real estate market, which itself could remain one of the more durable investment options amid trade and economic uncertainty. Retail trades accounted for nearly 40% of major CRE deal flow during the first quarter. As operating costs rise, net-leased listings should attract investors looking for less management-intensive assets that eliminate the need for additional capital infusions, said Marcus.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.