The lowest vacancy rate in 15 years. That’s the milestone the U.S. retail sector hit in the fourth quarter of 2022, according to the latest research from Lee & Associates.
And that’s just the start of the good news from the company’s fourth quarter 2022 retail report. According to Lee & Associates, the retail sector saw 20.7 million square feet of net absorption in the fourth quarter of last year. That brought the year’s total net absorption in this space to 74.8 million.
How strong are those numbers? Lee & Associates reports that this demand was the most seen in the retail sector since 2017 and exceeded new supply by 30 million square feet.
At the same time, the overall U.S. retail vacancy rate fell to 4.2% in the fourth quarter, the lowest this figure has been in 15 years.
This all happened despite the higher prices that consumers face for food, gas and housing. The retail sector has thrived even as interest rates rise. U.S. retail sales, excluding auto, gasoline and non-store retailers, rose to a new monthly record of $384 billion in September.
What’s behind the strong performance? Retailers got creative during the height of the COVID-19 pandemic, boosting their delivery services, offering curbside pick-up and making it easier for customers to order items online and pick them up in brick-and-mortar stores.
And once lockdowns ended and retailers were allowed to open fully for business? Shoppers returned in droves. This inspired merchants to lease up a net 72.4 millions square feet in 2021 and 74.8 million square feet in 2022.
It’s not surprising, then, that retail asking rents have jumped, with Lee & Associates reporting an increase of 4.2% in 2022, the highest in more than a decade.
Where are retail vacancy rates especially low? According to Lee & Associates, Nashville had a low retail vacancy rate of 3% in the fourth quarter of last year. The company reports, too, that Houston had more than 4.3 million square feet of retail space under construction as of the fourth quarter of 2022, the highest figure in the nation.
Other Midwest markets saw low vacancy rates, too, with Lee & Associates reporting that Minneapolis’ retail vacancy rate stood at 3.2% in the fourth quarter of last year and Madison, Wisconsin’s at 2.4%.
