The retail property market has rebounded since the start of last year and looks on track to continue recovery in the remainder of 2023. Rents are increasing in the Southeast US, although some larger metropolitan areas are recovering more slowly.
With shopping center traffic reaching close to pre-pandemic levels and vacancy rates at their lowest point in a decade, investors, property managers, and tenants alike are looking for ways to capitalize on this resurgence.
Retail Real Estate Outlook 2023
2023 will face some challenges, including rising loan interest rates, a possible recession, and inflation. However, despite these headwinds, the retail sector is starting to thrive again, attracting the interest of investors and users alike. Grocery-anchored retail centers are also attracting buyers due to their diverse tenant mix.
Retailers seeking to enhance the customer experience will focus on technology for convenience, including ideas like Amazon Fresh’s “walk out purchasing,”, where customers automatically get charged for items they leave the store with. We will also likely see the availability of more environmentally and socially conscious products for consumers.
5 Markets for Retail Real Estate Investments
When investing in commercial real estate, location is critical. Finding a property in a top retail market will put you ahead of the competition and one step closer to your target audience. Below are five of the top markets for buying, selling, and leasing retail space.
Nashville’s retail market is expected to be attract higher demand than the national average. Nashville saw year-over-year rent growth of 11.3% in 2022, nearly triple the US benchmark of 4.3% over the same period. Retail development in Nashville is also increasing, with most construction projects consisting of build-to-suit spaces or mixed-use development.
Dallas, TX has an average of 73,500 new residents each year, and developers are trying to keep up with demand as they expand to the northern suburbs. A spike in new residents means an increased need for housing and furnishing, as well as more shoppers in these neighborhoods.
This demand for home furnishings and accessories has resulted in new leases signed with furniture chains, with the most significant commitment coming from At Home and Campos Furniture. At Home has acquired over 100,000 square feet of space in North Dallas and Garland, while Campos Furniture occupies 95,000 square feet close to the Galleria in Farmers Branch.
Atlanta’s retail market has been resilient since the pandemic and continues to show yearly rent growth . Developers have focused on large-scale buildings such as malls and shopping centers, and investors are satisfied with the improvement in Atlanta’s retail leasing activity and net absorption. Atlanta has seen the lowest vacancy rate (4%) in over two decades and saw $83 million worth in retail sales in the first quarter of 2023.
In Q4 2022, the Austin retail market remained stable, with a slight increase of 10 basis points quarter-over-quarter. An increase in tourism inspired new construction projects, resulting in 1.9M square feet of new retail space. Austin’s total retail inventory is at 116,958,627 SF, with a vacancy rate of 3.3%.
Tampa, FL, has been experiencing strong retail demand for the past decade due to wage growth, solid consumer spending, and population gains. Last year approximately $1.7 billion was generated in total transaction volume, with the first quarter breaking records for reaching almost $600M in transaction volume in retail property sales. Another 800,000 SF of new retail space is in the works as the demand for retail continues to drive future development.
Best Practices for Buying, Selling, and Leasing CRE
When buying or selling commercial retail space, it is vital to research the market and find a property that meets your needs.
Do your due diligence on potential acquisitions: look at the location, available properties, zoning requirements, tenant mix, and local regulations, among other factors. Make sure to compare multiple real estate listings to ensure that you are getting the best deal possible. Additionally, consider consulting with a professional adviser, such as a CRE broker specializing in retail transactions, before entering into a purchase agreement.
Before listing a property for sale, ensure you have all your financials in order and understand what type of return you seek. Look into what permits may be needed and do a market analysis to determine the best asking price. Once your property is listed, it is important to ensure that you have adequate listing exposure and marketing materials so potential buyers know your property exists.
When selling, create a professional buyer package of documents, including zoning information, survey maps, title insurance reports, and financials, for potential purchasers to make an informed decision. Additionally, work with a real estate lawyer or broker specializing in retail transactions, as they can provide valuable advice on maximizing the transaction’s value.
Leasing commercial retail space involves time, planning, and a great location. Before seeking a place, devise a business plan to flesh out your goals and budget. Developing a plan of action will also prepare you for any questions leasing managers may have.
Once you figure out your goals and budget, it is time to research a location. This is where your business plan comes into play because the goals that you listed will help you identify your target customer.
After identifying your target customer and location, start looking online and driving around shopping centers in your ideal destination to get ideas. Tour sites and consider your co-tenants and traffic. For example, if you want to open a fitness clothing store, look for a space close to a juice bar, gym, or beach. Observe the area at different times on different days to get a feel for the clientele.
The Bottom Line
Physical stores provide healthy cash flow and are proving more resilient in a consumer-driven market, even when facing headwinds. When choosing a retail investment, it is important to have a business plan first to outline your goals and finances. Do your due diligence, evaluate your options, and make sure you crunch all the numbers so that your retail market investment has the best chance of success in 2023’s market.
Find your next retail investment on Crexi.