Need more evidence that retailers continue to face challenges from online competitors and the changing shopping habits of consumers? According to the U.S. Retail Market Outlook released Nov. 1 from Ten-X Commercial, retail net absorption across the country turned negative in the second quarter of 2018.
That’s the first time this has happened in seven years. Ten-X pointed to a steep rise retail vacancies across the country, too.
What’s behind this negative news? To no one’s surprise, Ten-X cited an increase in retail bankruptcies and what it calls a “massive” rise in e-commerce sales. Ten-X says that e-commerce sales have roughly doubled during the last 10 years and now account for 14.5 percent of total retail sales.
The continued growth of e-commerce is forcing landlords to get more creative when leasing spaces that have traditionally housed retail users. Ten-X pointed to the Brookfield Place retail center in New York City, where vacant locations are now being converted into hotels and offices.
“Despite economic expansion in the United States, the retail sector continues to wane with store closings and space shrinkage dominating the market,” said Ten-X chief economist Peter Muoio in a statement. “Even major retailers that have not formally filed for bankruptcy yet, such as JCPenney, are downsizing their operations, focusing now on only their most profitable locations.”
Another challenge for the retail sector? Ten-X reported that because of rising vacancies, effective rents, while they continue to grow, are rising extremely slowly. Ten-X says that retail effective rents should end 2018 just 1.8 percent higher than last year. That growth does lag inflation.
The news isn’t all bad, though. Ten-X listed some areas as “buy” retail markets for investors. That list includes Indianapolis, which Ten-X identified as one of the best retail locations for investors this year.
Ten-X pointed to Indianapolis’ low unemployment rate and payroll gains in the market’s key business, education and healthcare sectors. Retail rents here grew to $13.62 a square foot, up three percent on a year-over-year basis. These rents are poised to keep climbing, Ten-X reported.
Three Midwest markets also made Ten-X’s list of top five “sell” markets for investors, Memphis, Milwaukee and St. Louis. Ten-X pointed to Memphis’ above-average unemployment rate of 4.7 percent and a retail vacancy rate of 13.3 percent. Milwaukee’s population growth is too slow, Ten-X said, well below the national average.
And in St. Louis? Ten-X cited weak population growth and a retail vacancy rate of 12.9 percent as negative factors.