Retail Property Market Heading Towards Slowdown

The retail sector’s remarkable recovery from the pandemic may be put on ice as other economic forces take root.

Store bankruptcies, consumer pullback and tariffs are upending the retail property market, the Wall Street Journal reported.

In the first quarter, net occupancy in the sector declined by roughly 6 million square feet, according to Cushman & Wakefield. It represented the weakest quarter in the sector since the start of the pandemic.

Retailers are in retreat. A two-year streak of net expansion ended last year when 1,300 more stores were closed than opened, according to Coresight Research. Major bankruptcies from the likes of Party City, Big Lots, Joann and Rite Aid are forcing more store closures.

Beyond the bankruptcies, the impact of tariffs and trade wars is leading squeamish retailers to balk at increasing spaces.

“We have had people say, ‘OK, we’ve got to wait and see what’s going to happen before I commit,’” Brandon Singer, chief executive of retail leasing and advisory firm MONA Retail Holdings, told the Journal.

The bad vibes don’t detract from a positive overall picture for the retail sector. The shopping center vacancy rate ticked up to 5.5 percent in the first quarter, according to Cushman, but is still hanging around historically low levels.

Additionally, there are businesses looking to expand their footprint rather than reduce it. Off-price retailer Burlington already snapped up 45 of Joann’s leases in bankruptcy court. Discount retailer Five Below, fresh off 228 store openings last year, is looking to add another 150 this year.

But tariffs will likely impact landlords losing big-box tenants. While a couple of years ago, those spaces invited better-performing and higher-paying tenants, the price to reconfigure space for incoming tenants — taking into account construction and labor costs — no longer justifies the end result when compared to rent gains.

Tenants are also gaining leverage in their relationship with landlords, commanding concessions as owners try to keep a steady flow of revenue coming in.

— Holden Walter-Warner