Expanding Retail Tenants Remain Active in Hunt for New Locations

Article originally posted on CoStar on August 22, 2024

Retailers shook off numerous economic headwinds and signed leases for slightly more than 52 million square feet during the second quarter, an increase of more than 10% compared to the leasing averages recorded over the past two years for that quarter — and the most retail space leased in a three-month span since the first quarter of 2022.

What’s more, this total is expected to increase even further. The nature of lease data collection is such that upwards of 30% of total leasing activity signed during the quarter isn’t recorded until after the quarter ends. To account for this delay, CoStar estimates the additional leasing activity likely to be recorded. Including this estimate, retail leasing activity for the quarter is anticipated to eclipse 73 million square feet for just the third time in the past five years.

The increase in activity comes at a time when retailers are dealing with numerous concerns, including the health of the U.S. consumer, higher operating and build-out costs, and historically low space availability. Despite those obstacles, retailers remain exceptionally active in their search for space. This was demonstrated during the quarter when the number of retail space searches run on CoStar’s LoopNet platform recently hit a new record high.

While retail leasing activity was well dispersed geographically, activity is starting to slow slightly across more large markets. Nearly 60% or 23 of the top 40 U.S. markets by population size have seen a pullback in retail leasing activity over the past year relative to the average recorded over the prior five years.

Orange County, California, posted the biggest decline in leasing activity as a percentage of total inventory, moving from nearly 2.7% over the past five years to just slightly more than 2% over the past year. Other markets that have seen a meaningful downward shift include Columbus, Ohio, and Portland, Oregon, which have seen the share of inventory leased dip by at least 30 basis points during the past year compared to the prior five.

On the other end of the spectrum, Washington, D.C., saw the largest increase in retail leasing activity over the past year, with the amount of store space leased as a percent of inventory increasing from 1.6% to just over 2.0% during the past year.

Minneapolis, Kansas City and Seattle also increased retail leasing activity during the quarter. On an absolute basis, the top five U.S. markets for percentage of inventory leased over the past year include: Seattle, Miami, Dallas, Kansas City and Philadelphia.