The vacancy rate in the nationwide retail market increased by 10 basis points for the second-consecutive quarter to reach 5.2 percent in the just-ended third quarter as retail leasing and net absorption slowed despite continued improvement in the broader economy and growing consumer spending power, according to CoStar analysts.
A slowdown in third-quarter leasing performance for the U.S. commercial real estate market – including South Jersey retail space – reflects the ongoing store closures announced by several major retailers. Retailers have, in total, announced a record 101 million square feet of store closings this year on the heels of 83 million square feet of store space that went dark in 2016.
Despite these signs of decelerating leasing demand for the national and South Jersey commercial real estate markets, some analysts believe record levels of store closures eventually will have a ‘healing effect’ on the market as the weakest shopping centers shut down or are repurposed.
This report on U.S. and South Jersey commercial properties is being made through South Jersey commercial real estate broker Wolf Commercial Real Estate, a South Jersey commercial real estate brokerage firm focusing on South Jersey retail properties.
Analysts argue recent weakening of fundamentals does not necessarily justify a doomsday scenario, claiming that the focus on the ongoing purge among national and South Jersey commercial real estate properties masks the best-performing centers, many of which are adding stores and maintaining occupancy.
“Store closures have become a headline risk, and I think it is impacting the capital markets and pricing of retail property. But for shopping center owners and investors, these closures may be a necessary means to healing the market,” observed CoStar director of U.S. retail research Suzanne Mulvee in presenting the latest quarterly data during CoStar’s State of the Retail Market Q3 2017 Review and Outlook.
“Consumer spending (at the closed stores) needs to go somewhere, usually to another physical retailer, so we look at this trend as somewhat positive for the overall market,” Mulvee said. Surviving stores in the right locations “will ultimately come through this period even stronger than before,” added CoStar managing consultant Ryan McCullough.
One major issue contributing to concerns on Wall Street about U.S. and South Jersey commercial real estate listings is the staggering amount of debt held by retail chains, incurred in part during the wave of leveraged buyouts by private-equity firms in recent years.
The best-performing malls and shopping centers operating in the U.S. commercial real estate market – including South Jersey retail space – will continue to attract tenants and retain value. Average and lower-performing properties will continue lose value and eventually close or be repurposed, according to the report.
U.S. retailers dealing with national and South Jersey commercial real estate listings expect to open nearly 4,100 more stores than they will close in 2017, a conveniently overlooked fact in many news headlines focused chiefly on the number of store closings, according to “Decluttering the Retail Landscape,” a recent report by TH Real Estate.
Competition from online sales is pushing weaker retailers out of business faster than ever before, but the report posits that should ultimately result in a financially healthier and more adaptable set of retailers and shopping centers that provide more appealing experiences and a compelling product mix for shoppers.
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