Prolonged merchant demand for space, fewer store closures and bankruptcies and a limited available supply have combined to produce the tightest retail market on record in the United States and Canada, according to the latest report from commercial real estate services firm Lee & Associates. Vacancies in both markets are either at or near all-time lows, and the bellwether New York market has shown strength, as well.
The U.S. vacancy rate settled at 4.1% at the end of the first quarter, up slightly from 4% at the close of 2023. Demand for U.S. retail space rose by more than 53 million square feet in 2023, the third straight year of growth.
Most of the growth in demand for space has been driven by tenants from food-and-beverage, discount, off-price and experiential sectors, which accounted for more than half of all new leasing activity over the past year.
The widely watched Manhattan retail scene continued its strong showing in the first quarter, the Lee report notes. Luxury brands have been leading the charge with leases signed by Skims, Dolce & Gabbana and a Fifth Avenue property purchase by Kering for $963 million. Other highlights include Whole Foods renewing its lease for nearly 60,000 square feet and Wegmans securing a second Manhattan location with a similar footprint.
“Retail corridors like SoHo, Madison Avenue and Fifth Avenue are experiencing rising rents and declining vacancy rates,” the report notes. “This trend is expected to continue as the city anticipates an influx of tourists in 2024.”
Meantime, Canada’s first-quarter vacancy rate was 1.6%, which was unchanged from the previous quarter despite reduced consumer discretionary spending. But an appetite for cars, appliances and personal indulgences has kept inventories of big-ticket items low.
Click here for more from the Lee study.