Service-Oriented Leasing Surpasses Goods-Based Tenants

Goods aren’t gone from the retail market, but landlords are embracing service industries at a historic level across the country.

Last year, “service-based” tenants — like spas, gyms and cryotherapy facilities — leased more than half of the total retail square footage transacted, the Wall Street Journal reported, citing data from CoStar. It’s the first time service tenants outpaced goods-based tenants in the records.

“Consumer dollars remain firmly pointed at services,” CoStar’s national director of U.S. retail analytics Brandon Svec told the publication. “There’s nothing to suggest that that’s going to be shifting anytime soon.”

Fifteen years ago, service-based retail signings accounted for only 40 percent of total leasing. Since then, there have been a few years where the gap between the two sides closed significantly, particularly in the years leading up to the pandemic, but never a year where service-based retailers came out on top.

That side of the retail coin is being paced by the wellness industry, comprising nearly a dozen sectors, including spas, nutrition, beauty and mental wellness tenants. Landlords have found no shortage of potential clients for their buildings in the wellness space, from Botox injectors to vitamin infusions.

Additionally, there’s been a proliferation of gyms and fitness centers, also critical components of the wellness trend. Last year, fitness centers made up a 30 percent share of service-based leases, up from 20 percent in 2016. Planet Fitness is on an expansion footing, eyeing 200 openings this year after adding more than a million members last year.

The service-based retail industry’s biggest component — bars and restaurants — however, is retreating as eateries are crowded out by shifts in consumer spending.

The declining share of goods-based retail leases can at least in part be attributed to e-commerce, which accounted for more than 16 percent of total retail sales last year, according to the Department of Commerce.

The shift in retail leases has done little to dent the total retail leasing as the vacancy rate holds at 4.4 percent, close to record-low levels.

— Holden Walter-Warner