Retail Space, Shifting Landscapes

The retail real estate market in the United States is undergoing significant changes, with retail space per capita falling in over 60% of major markets over the past decade, according to a recent analysis by CoStar (Svec, 2024). This trend is reshaping the retail landscape across the country, with particularly notable impacts in the Midwest.

Key Points:

1. National Trend: The average retail space per capita in the 75 largest U.S. retail markets has decreased by 1.9% over the last decade, dropping to 58.9 square feet per person (Svec, 2024).
2. Online Competition: The demand for physical retail space has been affected by competition from online retailers, especially in categories like apparel, footwear, and home goods.
3. Changing Tenant Mix: Nearly half of all retail space leased in the past year was occupied by non-traditional retail tenants, reflecting a shift towards health, beauty, wellness, and personal services.
4. Supply Constraints: New retail construction has been limited since the Great Financial Crisis, with most development focusing on build-to-suits and mixed-use projects.
5. Demolition Trend: Over 170 million square feet of retail space has been demolished since 2017, largely due to the closure of department stores and malls.

Impact on the Midwest:

The article highlights a significant trend in manufacturing-driven Midwestern markets that has important implications for real estate in the region:

1. Population Stagnation: Many Midwestern markets have experienced population stagnation or decline, contrasting sharply with the demographic booms seen in Sun Belt markets.
2. Surplus Retail Space: Despite minimal new development, retail space per capita remains relatively high in these Midwest markets. This is because the existing inventory exceeds the demands of a shrinking or static population.
3. Challenges for Real Estate: The surplus of retail space in the Midwest is creating challenges, including:

• Higher vacancy rates
• Underutilized properties
• Difficulties in repurposing or re-leasing surplus retail space

Legacy of Past Development: The current situation is partly a result of expansive retail development during previous boom times, leaving these areas with more retail space than the current population can support.

Conclusion: The retail real estate landscape is evolving differently across U.S. regions. While Sun Belt markets are seeing population growth outpace retail inventory growth, Midwestern markets face unique challenges. The surplus of retail space in the Midwest, coupled with population stagnation, presents both challenges and opportunities for real estate professionals and urban planners in the region. As the retail sector continues to adapt to changing consumer preferences and demographic trends, markets in the Midwest will need to find innovative solutions to repurpose excess retail space and align their real estate inventory with current population needs.

Source:
Svec, B. (2024, June 27). Retail Space Per Capita Keeps Falling. CoStar Analytics.