Despite inflation and rising prices across the board, retail sales increased by 8.9% in July according to Colliers Fall 2022 US Retail Report. Consumers are adapting to the changing marketplace by searching for discount retailers and using savings or credit cards to continue making purchases.
On the investment side of things, the retail sector is the only asset class with an increase in sales volume quarter-over-quarter in 2022, which has kept deals flowing. Given the higher cap rates in retail compared to other sectors, investors are still finding positive leverage and competing for properties.
Not all retail properties are created equal, and some types have performed better than others throughout the pandemic and during inflation. Malls have continued to decline whereas general retail and neighborhood strip centers have remained competitive, due largely in part to the strong demand for restaurants, grocery stores, and discount and big-box retailers. With the increase in consumer spending and the decrease in supply of available space, vacancy rates are in the single digits resulting in a bidding war for Class A retail spaces.
For my clients looking for retail opportunities, I’m pointing them towards strip centers or stand-alone retail buildings with a good tenant mix and a safe anchor tenant like a grocery store or discount brand. Retailers that survived the pandemic are durable: they have embraced an omnichannel strategy and adapted to the changing times, therefore this inflationary period should be easier to weather for the retail sector, making it a safer bet for investors.
Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.