Q4 2022
Retail Leasing Market Remains on a Roll
Despite predictions of a possible recession, retail tenants continued to expand in the third quarter of 2022 by leasing just over 53 million square feet of store space. The total amount of retail space leased is expected to increase as deals completed near the end of the quarter are recorded. Once those deals are taken into account, the third-quarter total is estimated to reach 68 million square feet, putting the U.S. retail market on pace for its best year for leasing activity since 2018.

Leasing activity is being driven by strong demand for smaller spaces with the average space leased around 3,000 square feet, a new all-time historical low. The increase in activity for smaller footprints is being overwhelming driven by the growth in the store counts for cellular retailers and quick service restaurants brands such as Starbucks, Yum Brands, and Restaurant Brands International. The demand is also there for medium to larger retail users, such as Dollar Tree and Dollar General, as well as by off-price retailers like TJ Maxx and Burlington.

Freestanding properties remain in high demand for quick-serve restaurants, discounters and big-box retailers. Target, which has nearly 2,000 brick-and-mortar locations, plans to roll out larger-footprint format stores which will be roughly 150,000 square feet, 20,000 square feet larger than their average store. The new store will focus on expanded space for online fulfillment and a greater selection of groceries.
Grocery-anchored shopping centers continue to be well positioned to weather a recession, much as they did during the initial stages of the pandemic. There has been a resurgence in demand for shop space from both local and national tenants. Grocery-anchored vacancies were sitting at 5.4% as of Q3 2022, as compared to non grocery-anchored centers, which had an average vacancy of 6.7%. This past year has also seen an increase in leasing volume for experiential tenants and fitness centers, accounting for approximately 15% of all retail leasing activity since the beginning of 2022.

A record 196.7 million Americans shopped over the Thanksgiving holiday weekend. The total number of shoppers from Thanksgiving Day through Cyber Monday increased by nearly 17 million from 2021 - up 9% from 179.8 million. More than 122.7 million people shopped at brick-and-mortar stores over the weekend, up from 17% in 2021, according to the National Retail Federation and Prosper Insights & Analytics. Despite the economic headwinds of record inflation and rising interest rates, the National Retail Federation has forecast that for the holiday season, which spans November 1 to December 31, retail sales will rise 6% to 8% over 2021 to between $942.6 billion and $960.4 billion.

Sources: CoStar News
Fort Collins/Loveland/
Larimer County

The Larimer County sub-market is comprised of 22.4 million square feet of retail space, up 0.2% from Q4 2021. 12 month net absorption is negative 118.5% or negative 44,600 square feet, where the prior period saw positive net absorption of 241,000 square feet signally a significant decline in leasing activity through out 2022. The vacancy rate has increased to 3.8% (845,000 square feet), up from 3.4% in Q4 2021. The availability rate currently sits at 4.6%, up from a record low of 3.7% in Q2 2022. Of the 141 retail leases completed in the last year, only three were over 10,000 square feet. The Picklr, a premier indoor pickle ball club, leased 20,533 square feet at 3137 N. Garfield Avenue in Loveland, in the building previously occupied by Hobby Lobby.

Although leasing activity has slowed, rent growth has increased by 5.3% since Q4 2021, with average market rents at $21.23 per square foot, a new record high for the sub-market. Average market sale price per square foot is also at a record high of $252, up 5.3% from Q4 2021. Market cap rates remain stable at 6.4%.

Sources: CoStar
Greeley/Weld County

The Greeley/Weld County sub-market is half the size of Larimer County, with 12 million square feet of retail space. There is currently 125,000 square feet under construction, a 172.6% increase from Q4 2021. 12 month net absorption is also on the rise at 167,000 square feet, a 230% increase from the prior period. The vacancy rate has declined 0.7% from 2021 and is sitting at 2.9% or 352,000 square feet. 67 retail leases were signed in the last year, with only two being over 10,000 SF. Habitat for Humanity leased 49,672 square feet at the Greeley Mall and Burlington Coat Factory leased 27,974 square feet at 4735 W. 29th Street, a standalone building among other big box retailers.

Rents are increasing and have grown 4.6% from Q4 2021 with an average market rent of $16.80 per square foot. The average market sale price per foot is $202, a 5.3% increase from the prior period. Average market rents and sale price per square foot are at an all time high, mirroring Larimer County. Market cap rates remain at an all time low of 6.69%.

Sources: CoStar
But Can it Last?

While the U.S. retail space market saw another quarter of growth, it remains unseen how long the leasing momentum can be sustained. As persistent inflation continues to eat into the income of consumers, it’s anticipated consumers will begin to spend less on discretionary goods and services, with their spending focused on necessity and online shopping. Simon Property Group, the nation’s biggest mall owner, remains optimistic as it reported an increase in its occupancy and rents in Q3 2022 despite the rocky economic environment. Occupancy for Simon’s malls and premium outlets was near 95% in Q3 2022 as compared to 92.8% in Q3 2021. Base rent per square foot was reported at $54.80 compared to $53.91 as of the same time a year ago, roughly a 2% increase. 2021 and 2022 saw a resurgence in the retail market, but will it loose its steam in 2023?

Source: CoStar News
Realtec is here to help navigate the changing market
CoStar Market Reports - Larimer and Weld County
Q4 2022
This quarterly publication is authored by Jamie Globelnik of Realtec Loveland