Investors looking for somewhere to sink their dollars this year? Many will purchase retail assets, according to the latest research from JLL.
According to JLL’s 2024 City Retail Report, urban retail assets should attract plenty of investor dollars this year. Why? The retail sector is performing well today thanks to robust consumer spending. The sector is also seeing record-low vacancy rates. Because of this, these assets remain attractive to investors ready to spend again now that the Federal Reserve Board is no longer increasing its benchmark interest rate.
JLL reported that the retail sector saw a combined 3.3% growth in asking rents in prime corridors from 2022 to 2023. Consumer spending continues to grow, too, surpassing $705 billion in September of 2023.
And in more good news? JLL reported that retail vacancy reached a historic low of 4.2% as of the end of 2023.
“Urban retail has reclaimed its prominent position in the market in 2024 with its resilient tenant demand, robust occupancy rates and steady rent growth,” said senior managing director Chris Angelone in a written statement. Angelone co-leads the JLL Retail Capital Markets platform.
JLL reported that the performance of urban retail has been heavily supported by the growing strength of other property sectors. Such as? Office populations surpassed 50% across all major metro areas, urban hotel RevPAR has exceeded 2019 levels and residential population outflows from major cities have stabilized.
At the same time, the reemergence of group, business and international travel is expected to further boost the performance of urban retail markets. As of September of last year, visitors to the United States had spent a combined $156 billion in 2023. That’s an increase of 31.6% when compared to the same period the previous year and a 183.7% increase when compared to 2021.
Not all the news in JLL’s report was good, though. A lack of portfolio transactions and larger deals reinforced by debt market turbulence resulted in liquidity declines when compared to the admittedly abnormally high activity of 2021 and 2022. As a result, U.S. urban retail transaction volume reached just $4.8 billion in 2023, down 39% on a year-over-year basis.
When compared to all other core property sectors, though, urban retail investment activity experienced the lowest level of decline year-over-year in 2023.
JLL says that investment activity is expected to accelerate in the retail sector during the next 12 to 18 months thanks largely to the growing optimism that the country will see interest rate cuts this year.
An example of the already strengthening performance of the retail sector? JLL Capital Markets on Feb. 8 closed the sale of 701 North Michigan Ave., a 22,900-square-foot retail asset at the base of the Warwick Allerton Hotel on Chicago’s famed “Magnificent Mile.”
The property is currently leased to a high-performing Rolex, which occupies 2,240 square feet of ground-floor retail and 2,040 square feet of basement storage on a long-term basis. JLL represented the seller, Grosvenor, and procured the buyers, Mason Asset Management and Namdar Realty Group. Managing Director Keely Polczynski, Senior Director Michael Nieder, Associate John Dettlaff and Analyst Caity Tirkian led the JLL Investment Sales Advisory team in this transaction.
Previously, long-term tenants Brooks Brothers and Stuart Weitzman occupied the entire space, but both left this location during the COVID pandemic. Rolex, which had enjoyed a long history across the street, leased the space to sit at the marquee corner with the added benefit of lower-level storage space.
“This was a heavily sought-after offering, given the opportunistic nature of the deal at a key corner along an internationally renowned high street,” said Polczynski, in a written statement. “There is a growing sentiment that the window to buy assets like this is closing.”