NATIONAL REPORT

RETAIL
2Q/24
Retail Retains Status as the Least Vacant Property Sector as Strong Fundamentals and
Consumer Resiliency Help Brace Against Potential Headwinds
Greater foot traffic and easing inflation lift outlook. The retail Potential bulk disposition would impact group of property owners.
sector was the only major commercial real estate property type to In early June, Dollar Tree announced it is considering a sale or spin-
note vacancy compression over the yearlong period ending in March. off of its discount-focused Family Dollar chain, which includes 7,300
Consumer resiliency is fueling steadfast tenant demand for space. stores. While no timeline was given, the execution of these strategies
Core retail sales rose 2.9 percent in the first five months of 2024 when would create several scenarios for property owners with stores slated
compared to the same period of 2023. Over that span, restaurants, for disposition. Owners with stores pinned for sale could see the
supermarkets, discount stores and fitness centers all noted 5 to 9 credit quality of their tenant improve. Shopping center and net-lease
percent year-over-year gains in foot traffic. A strong labor market — owners with stores slated for spin-off, meanwhile, would see their
1.24 million jobs added over the first five months of 2024 — has aided circumstances adjust nominally, unless stores were closed by the new-
households’ buying power, fueling the increases in spending and ly formed company. If listed for sale, Family Dollar locations could be
patronage. Should these trends continue, and inflationary pressures acquired by several different parties in bulk — similar to Dollar Tree
ease further from May’s three-year low annual core CPI rate, demand and Ollie’s Bargain Outlet acquiring the rights for clusters of 99 Cents
for space will be strong amid a period of limited construction. Only Stores in May.

Widespread demand evident. Among property types, multi-tenant A significant volume of capital awaits deployment. Tight vacancy,
vacancy was at a record low in March, with single-tenant vacancy just record asking rents and resilient consumer spending should continue
10 basis points above its all-time bottom. Tight conditions are also to draw investors to retail listings. Contrasting some other commer-
prevalent across geographies, with broadly low vacancies nationwide. cial real estate segments, the availability of higher yielding assets and
Among the 50 major retail markets, 34 ended March with a sin- steady property valuations — with average retail pricing adjusting
gle-tenant vacancy rate at least 100 basis points below their long-term nominally over the past 12 months ending in March — should also
mean. Across these same markets, 27 exhibited sub-5 percent multi- broaden the buyer pool. Investors with an appetite for low-7 to 8
tenant vacancy, a longer list than from the same period five years ago. percent cap rates may pursue grocery-anchored properties and power
With vacancy limited, construction is warranted; however, 30 major centers. More hands-on buyers can obtain higher yields for unan-
markets will record stock growth of less than 0.5 percent in 2024. As chored centers, while buyers seeking less management-intensive as-
such, property owners in search of tenants are in a favorable position. sets that provide long-term stable income focus on net-leased assets.

Retail
Retail
Supply
Supply
andand
Demand
Demand Sales
Sales
Historically
Historically
High,
High,
butbut
Growth
Growth
Slowing
Slowing
Completions
Completions Net Absorption
Net Absorption Vacancy
Vacancy
RateRate Change
Change
in Spending
in Spending CoreCore
Retail
Retail
SalesSales
Completions/Absorption (Millions)
Completions/Absorption (Millions)

90 90 6.0% 6.0%
Month-Over-Month Change
Month-Over-Month Change

4% 4% $520 $520
Monthly Sales (Billions)
Monthly Sales (Billions)

60 60 5.5% 5.5%
2% 2% $490$490
Vacancy Rate
Vacancy Rate

30 30 5.0% 5.0%
0% 0% $460$460

0 0 4.5% 4.5% -2% -2% $430 $430

-30 -30 4.0% 4.0% -4% -4% $400$400

20 20 21 21 22 22 23 23 24* 24* May 2021
May 2021 May 2022
May 2022 May 2023
May 2023 May 2024
May 2024

* Forecast
Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Federal Reserve
 TRENDS IN RETAIL DEMAND

Smaller-Midsize Centers Attract Tenants Broad Rise in Foot Traffic Backs Growth
Vacancy T-12 Net Y-O-Y Asking
Property Type Y-O-Y Foot
Rate* Absorption** Rent Change* Store Type Traffic Brands’ 2024 Expansion Plans
Change***
Strip Center 4.3% 3.5M sq. ft. 2.4%

Aldi (Acquired Southeastern Grocers. Will

Comm.-Nbhd. Center 5.8% 16.0M sq. ft. 4.6% convert 50 Winn-Dixie or Harveys Supermar-
kets locations to ALDI stores in the second
Grocery 5.7% half.)
Power Center 4.2% 2.0M sq. ft. 0.1%
Sprouts Farmers Market (35 new stores)

Trader Joe’s (24 new stores)

Lifestyle Center 4.9% 1.5M sq. ft. 1.9%

Jersey Mike’s (350 new stores)

Outlet Center 4.8% 384K sq. ft. 1.5%
Fast Food- Chipotle (285 to 315 new stores)
1.5%
Regional Mall 9.4% -1.2M sq. ft. -10.0% Quick Service Raising Cane’s (90 new stores)

Shake Shack (80 new stores)

Dollar Tree (Purchased 170 former 99 Cents

Available Net-Lease Space Still Limited Only Stores; exploring sale of Family Dollar)

Dollar General (800 new stores)

Discount 8.9%
Vacancy T-12 Net Y-O-Y Asking Five Below (225 new stores)
Property Type
Rate* Absorption** Rent Change* Ollie’s Bargain Outlet (50 new stores; pur-
chased 11 former 99 Cents Only Stores in May)
Restaurant 3.8% 1.7M sq. ft. 2.4%

Texas Roadhouse (30 new locations)

Supermarket 2.2% 3.3M sq. ft. 9.7% Restaurant 6.4%
Outback Steakhouse (18 new locations)

Department Store 6.4% -449K sq. ft. 14.5%

Burlington (100 new stores)
Department 0.02%
Ross Dress for Less (90 new stores)
Fast Food 1.3% 1.4M sq. ft. 5.7%

Drug Store 3.1% -1.9M sq. ft. -9.8% Planet Fitness (140 to 150 new locations)
Fitness 4.8% Crunch Fitness (Increasing growth rate by 20
Convenience Store 1.1% 1.7M sq. ft. 1.4% to 25 percent)

Expansion Initiatives Limit the Impact of Upcoming Store Closures

Candidates in place to backfill spaces of various sizes. A round of drug store, big-box and restaurant closures are lined up for the second half. For-
tunately for impacted property owners, a diverse group of retailers remain in expansion mode. This and leasing data from the past 18 months indicate
most soon-to-be vacated spaces will attract a pool of potential, higher-credit suitors — demand that will minimize these closures’ impact on vacancy.
Grocers, fast food chains, discount stores and off-price retailers headline the cohort of companies likely to backfill these spaces; however, other ten-
ants will vie for these storefronts. Pickleball franchises have collectively leased more than 2 million square feet nationwide since the onset of 2023.
At an average of nearly 30,000 square feet, these commitments have played a notable role in removing big-box spaces from the nation’s vacant stock.
The Picklr and PickleRage are among the expanding companies, with the latter planning to open 500 locations in the next five years. Other fitness-re-
lated tenants, primarily gyms, signed over 700 leases — averaging 11,500 square feet — over the past 18 months, aiding owners with mid-size vacan-
cies. Those with smaller-scale availability will benefit from the increased presence of health providers and specialists in retail settings. Over the past
12 months, 1,000-plus retail leases were inked by medical-related groups, including urgent care providers, health systems and animal hospitals.

* As of 1Q 2024
** Trailing 12 months through 1Q
*** January through June 9th period
Sources: Marcus & Millichap Research Services; Chain Store Age; CoStar Group, Inc.; Placer.ai; PNC Real Estate
Market Analytics; Supermarket News; Various company earnings reports and press releases
 U.S. RETAIL INVESTMENT

2024 U.S. Forecast

EMPLOYMENT CONSTRUCTION
1.3% increase Y-O-Y 40 million square feet completed
• Despite a tight labor market, employers grew staffs by • Delivery volume rises slightly when compared to 2023;
0.8 percent over the first five months of this year. While however, completions expand inventory by just 0.4 per-
hiring velocity is expected to gradually slow in the sec- cent for the third time in four years. Of the nation’s 50
ond half, 2 million positions will be added during 2024. major markets, 43 record sub-1 percent stock growth.

VACANCY ASKING RENT

10 basis point increase Y-O-Y 2.2% increase Y-O-Y
• A fourth straight year of positive net absorption is not- • A still-limited volume of vacant space in 2024 allows
ed; however, the vacancy rate rises, albeit slightly, for the average asking rent to reach a record mark of
the first time since 2020. Still, at 4.8 percent, vacancy is $22.88 per square foot. Six of the top 10 metros for
100 basis points below the long-term average. marketed rate growth are located in the South.

2024 INVESTMENT OUTLOOK Retail Sales Volume By Price Tranche

$1M-$10M $10M-$20M $20M+
• Tight vacancy and value creation prospects expand strip center appeal. Typically
$160
located closer to consumers than other retail properties and featuring diverse ten-
Total Sales Volume (Billions)

ants mixes, strip centers are eliciting notable interest from private investors, along $120
with some institutional parties eying portfolio creation. As of April, vacancy in the
subsector was at its lowest level since 2003, with sub-$200 per square foot pricing $80

and 7 percent-plus first-year returns common over the past year. Also attracting in-
$40
vestors, the potential to capture value by re-tenanting vacant spaces is more frequent
than at other retail properties, as leases often carry terms of one to three years. $0
04 06 08 10 12 14 16 18 20 22 24*

• Backfilling velocity heightens interest in outdoor centers. Representing the least

vacant multi-tenant property type, at 4.2 percent in March, power centers are also
garnering noteworthy attention from active shopping center investors. Competition
Investment Sales Trends
Average Price Average Cap Rate
for these assets stands to escalate, specifically in high growth Sun Belt markets, if re-
cently vacated big box spaces continue to be backfilled in relatively short time frames. $230 7.5%
Average Price per Sq. Ft.

• New law may shift some buyer attention. California’s eight major markets and its $200 7.0%
Average Cap Rate

Central Valley accounted for 20 percent of all retail transactions nationally over the
$170 6.5%
past year ending in March. However, a new state law enacted in April requiring fast-
food and fast-casual chains with 60 or more locations to pay workers at least $20 per $140 6.0%

hour could impact investor activity if store closures result. Citing the rising cost of
$110 5.5%
doing business, Rubio’s Coastal Grill shuttered 48 California locations in early June. 14 15 16 17 18 19 20 21 22 23 24*

* Trailing 12 months through 1Q

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.;
Real Capital Analytics
 U.S. CAPITAL MARKETS

Monetary Policy Trends More Diverse Lending Pool and Potential Late-
Fed Holdings Fed Funds Rate Year Rate Cuts May Facilitate Transactions
$8.8 8%
Reduction still expected in 2024. The Federal Open Market Committee held
Fed Holdings (Trillions)

$6.6 6%
the federal funds rate firm at its mid-June meeting, maintaining the lower

Fed Funds Rate

bound of 5.25 percent first set in July of last year. Moving forward, the Fed’s
$4.4 4% Summary of Economic Projections implies one or two rate cuts could happen
this year, with these reductions possibly not occurring until the fourth quarter.
$2.2 2%
This indicates more evidence is needed to confirm inflation is well on its way to
the committee’s 2 percent year-over-year benchmark. In April, core PCE was
$0 0%
06 08 10 12 14 16 18 20 22 24* up 2.8 percent annually, while core CPI was up 3.4 percent year-over-year in
May. How well the labor market and economy hold up will also determine the
timing of potential future cuts. Job growth continued to exceed expectations in
Retail Mortgage May, with 272,000 positions added and approximately 1.2 openings per worker
Originations By Lender** available. Resilient consumer spending, meanwhile, supported a 1.3 percent an-
nual increase in GDP in the first quarter of 2024. While the timing of a rate cut
remains uncertain, the Fed did implement a new policy in June that will slash
Percent of Dollar Volume

CMBS
Reg'l/Local Bank its holdings by $25 billion monthly. This will exert less upward pressure on the
Nat'l Bank/Int'l Bank 10-year Treasury, which combined with a rate cut would translate to modestly
Insurance lower borrowing costs for commercial real estate investors.
Investor-Driven
Pvt/Other Financing availability improves. Last year marked the return of meaningful
CMBS lending to the retail investment landscape. These sources accounted for
25 percent of all sector-related financing, following a 12 percent share in 2022.
* Federal funds rate as of June 12; Fed holdings as of June 3 Investors acquiring anchored shopping centers with long-term leases in place
** 2023; Properties and portfolios $2.5 million and greater were the primary beneficiary, obtaining 55 percent leverage on average. Local
Sources: Marcus & Millichap Research Services;
and regional banks, meanwhile, accounted for a smaller chunk of lending activ-
Real Capital Analystics; Federal Reserve
ity last year, albeit a still notable 35 percent. The main source for single-tenant
borrowers seeking sub-$10 million loans, these banks were most active in sec-
ondary and tertiary markets, providing investors with 65 percent leverage on
average. Looking ahead, the retail sector’s tight vacancy and restrained devel-
opment will continue to rank net-leased assets and well-located shopping cen-
ters with high-credit anchors among the more approachable property types for
active lenders. For larger investors with significant dry powder and smaller bor-
rowers that have executed 1031 exchanges, however, all-cash transactions will
remain an attractive option.
Retail Division
Daniel Taub
Senior Vice President, National Director
Tel: (212) 430-5100 | daniel.taub@marcusmillichap.com

Prepared and edited by:

Erik Pisor
Research Analyst | Research Services
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made
For information on national retail trends, contact: to obtain accurate and complete information; however, no representation, warranty or guarantee, express or
John Chang implied, may be made as to the accuracy or reliability of the information contained herein. Sales data includes
Senior Vice President, National Director | Research & Advisory Services transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future
Tel: (602) 707-9700 | john.chang@marcusmillichap.com events and this is not a guaranty regarding a future event. This is not intended to provide specific investment
advice and should not be considered as investment advice.
Price: $1,500 Sources: Marcus & Millichap Research Services; Bureau of Economic Analysis; Bureau of Labor Statistics; Chain
Store Age; CoStar Group, Inc.; Federal Reserve; Placer.ai; PNC Real Estate Market Analytics; Real Capital
© Marcus & Millichap 2024 | www.MarcusMillichap.com Analytics; Supermarket News; U.S. Census Bureau; Various company earnings reports and press releases