Consumer Spending Soars While Retail Battles Persistent Oversupply

Retail Space in Flux: Spending Booms, Yet Perception of Oversupply Remains

Since peaking in 2009, retail space per capita in the U.S.'s top 45 retail markets has declined to a multi-decade low of 54.3 SF, a 3.9% drop, even amidst rising retail spending and population.

Shift in space: The COVID-19 pandemic and subsequent fiscal measures led to an explosion in US consumer spending. Notably, consumption of goods soared by 35% and services by 21% post-February 2020. However, even with such growth, the sentiment of the retail sector being oversupplied hasn't changed. The proof? Over 130 million square feet of retail space, especially outdated department stores, were demolished in the past five years.

Against this backdrop: The retail sector has witnessed a subtle annual inventory increase of less than 0.5%, with retail space efficiency improving due to heightened population and spending. E-commerce has impacted spending in specific segments, but retail sales, excluding specific categories, are at an all-time high. The sector is observing a shift towards service-oriented tenants, prospering with increased consumption within a retail footprint that hasn’t increased.

Market contraction: The reduction in retail space per capita isn't uniform. Of the top 45 US markets, 34 witnessed a decline in the past 15 years. Notably, markets like Austin, Orlando, Nashville, Atlanta, and Seattle, experiencing significant population growth, have seen the most considerable contraction in retail supply per capita, averaging a 15% decline, or 9.3 square feet per capita.

Market expansion: Conversely, 11 markets have seen a rise in retail space per capita in the last 15 years, with an average increase of 3.1% or 1.9 square feet. Most of these markets, except for Miami, have struggled with population growth, leading to increased retail space per capita due to fewer people, not more shopping options. This expansion in supply per capita is most notable in Rust Belt cities like Milwaukee, Cleveland, Pittsburgh, Chicago, and Detroit.

➥ THE TAKEAWAY

Looking ahead: Due to high construction costs, retail space expansion is expected to be limited. With 2023 witnessing the lowest retail construction starts in a decade and few ongoing projects, retail space per capita will likely decline further. This trend persists despite rising consumer spending, especially in rapidly growing population areas that optimize retail space more efficiently.

AirGarage Boosts Charleston Lot Revenue by 44%

Two words: Dynamic Pricing.

It’s a simple concept, really. Dynamic Pricing is applied across all industries. It’s a valuable part of any good business’ tool belt.

Airlines charge more for popular flights and less for unpopular ones. Hotels increase rates when rooms are in high demand and decrease them when things are quiet.

It’s time for this simple concept to finally be applied to the parking industry.

AirGarage took over this parking lot in Charleston and increased revenue by 44% despite traffic levels staying constant year-over-year.

AirGarage has built its own technology and data stack from the ground up to manage and monetize parking lots, which is what enables sophisticated pricing experimentation and optimization for the first time.

When drivers enter the parking lot, each one can be shown a different “experimental” rate, and then their downstream behaviors can be measured to determine the optimal price for that location in real time.

And when the lot starts to fill up, parking rates automatically increase to maximize the revenue collected.

The results speak for themselves.

Is your parking lot or parking garage’s pricing still only being updated once or twice per year? If so, you’re leaving revenue on the table.

Get in touch with AirGarage to learn how pricing optimization can boost your parking facility’s revenue too.

*Past performance is not indicative of future results. This post contains sponsored content.

Navigating Commercial Real Estate Amidst Rate Hikes and Credit Challenges

The CRE market is in flux due to aggressive Federal Reserve rate hikes, affecting property values and raising capital costs. Yet, savvy investors can find promising opportunities by understanding industry dynamics and adapting to change.

Impact of higher rates and scarcer credit: The significant surge in interest rates has forced CRE investors and developers, accustomed to low borrowing rates, to adapt to higher interest payments. Loans have become scarcer, and interconnected relationships among CRE industry lenders have accelerated "contagion" effects due to tightened credit conditions. This issue has been exacerbated by the U.S. regional banking crisis, with small and regional banks, accounting for 26% of CRE loans, facing considerable strain.

Stressed properties: The CRE industry, encompassing key sectors like office, hospitality, retail, industrial, and residential, operates within a complex network where stakeholders influence one another. "Stressed" properties, at risk of financial collapse, have become focal points for potential investments. Approximately $1.5 trillion of the total $4.5 trillion outstanding CRE debt is nearing maturity, posing both concern and opportunity in the industry.

Challenges and opportunities: The office sector in the CRE market is facing significant stress, evident in rising vacancy rates and declining property values due to the prevalence of remote work. With limited new office space under development and a substantial number of commercial mortgages maturing soon, property owners in this sector face urgent challenges in negotiating new terms with their debt holders.

Varied investment strategies: Investment opportunities within the current CRE market are diverse. Strategies include acquiring stressed or non-performing loans, capitalizing on volatility in securitized CRE debt markets, engaging in restructuring for property ownership, privatizing publicly traded real estate companies or REITs at discounted valuations, and purchasing equity at a discount. While the office sector is less attractive, sectors like retail, hospitality, industrial, and residential offer promising prospects at attractive valuations.

➥ THE TAKEAWAY

Big picture: Despite disruptions caused by higher interest rates, tighter credit conditions, and the regional banking crisis, investors can harness emerging opportunities within the U.S. CRE market by adapting and strategizing effectively. Opportunities span across various sectors, including medical offices, multifamily housing, data centers, and hotels. With keen insights and an adaptive approach, investors can potentially realize significant gains amidst market dislocations and stress in various CRE sectors.

Have you ever pondered what percentage of single-family homes are owned by operators who have a portfolio of 10 or more units? We have as well.... On a national level, approximately one in every 20 single-family homes (around 4%) are owned by such operators.

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