The U.S. retail market is experiencing growth driven by smaller tenants leasing spaces under 2,500 square feet, according to a recent report from Colliers. This trend, fueled by quick-service restaurants and personal service providers, has led to a concentrated focus on developing single-tenant build-to-suits and smaller spaces in mixed-use developments. Nicole Larson, Colliers National Research Manager for Retail Services, emphasized that these conditions favor smaller retail tenants, enabling them to thrive amidst high demand and limited supply.
In the second quarter, tenants absorbed 7.2 million square feet of retail space, up from 4 million square feet in the first quarter. However, this pace is slower compared to the previous year, which saw a net absorption of 13 million square feet. Larson attributes the slowdown to a lack of new retail center developments and available space, with vacancy rates holding steady at a record low of 4.1%. Shopping center asking rents have also increased, averaging $33.61 per square foot at the end of the second quarter, a 3.3% rise from the same period last year.
Despite rising interest rates, store openings in the U.S. have outpaced closures by 20% in the first half of 2024, according to Coresight. This retail boom is closely linked to a surge in dining out, with food and beverage tenants comprising 20% of all retail leasing activity. Chains like Crumbl Cookies, Starbucks, KFC, Pizza Hut, Taco Bell, Burger King, Popeyes, and Firehouse Subs have all expanded their locations. Additionally, experiential chains such as Planet Fitness and Urban Air adventure parks account for nearly 15% of leasing activity.
Looking ahead, Larson notes that the U.S. retail market is set to continue its cautious yet opportunistic growth. She advises retailers and investors to remain vigilant, adaptable, and forward-thinking to navigate economic fluctuations and seize emerging opportunities in the retail sector.
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