Originally published in March 2014 in The Enterprise, www.slenterprise.com
While major retailers across the country continue to close multiple locations, new data from Cushman and Wakefield Commerce point to overall growth in the retail sector. Locally a 752,321 square feet absorption of existing space points to a healthy retail environment.
With limited new construction in Utah in 2013, vacancy rates declined approximately 2 percent, leaving an overall vacancy rate of 6 percent. The low vacancy rate also pushed lease rates up 3 percent in 2013.
Announced projects point to increased construction in 2014 that will bring retail growth back in line with long-term averages. Several grocers and dining businesses are planning new construction in this market. Although this new construction will slow vacancy rates’ decline, vacancy rates will continue to remain at or near their current levels. This will continue to put upward pressure on average asking rates.
Utah is seeing growth in quick serve/fast food outlets in strategic areas. This growth includes established brands as well as brands that are new or relatively new to this market, like Dunkin’ Donuts and Popeye’s. Zaxby’s, a chain that specializes in chicken, has announced that it will open 18 Utah locations. There is also a growth trend in the fast casual category, with tenants looking for drive-through capabilities as an avenue of growth. These retailers include Little Caesar’s, Panda Express and Jimmy John’s.
Smith’s Marketplace will add a new store in West Jordan and Walmart will continue its expansion of the Neighborhood Market concept with a new store in Magna, as well as other locations in Utah. Sprouts will open a location in Cottonwood Square in Holladay and will start construction on a new property at 11400 South and State in South Jordan.
Nationally, retail sales have been improving, with 4.2 percent growth in 2013 from the previous year. Over the same period, the Consumer Price Index increased only 1 percent, which indicates that the majority of growth in retail sales is coming from increased purchasing and consumer confidence and not from increased pricing.
While some retailers are struggling, specialty retail is strong and expanding. Forever 21, H&M and Uniglo, which cater to the young and hip, are benefitting from product versatility, good price points, strong market appeal and operating efficiencies. Dollar General, Dollar Tree and Family Dollar, which together operate some 22,000 stores, are expected to open approximately 1,300 stores in 2014, divided among the three chains. GameStop is predicting 80 new stores, GNC has announced 180 new locations and Starbucks will open 600 new locations.
2014 will also bring an increased flexibility in the size and shape of retail footprint. Co-locating and branded “mini-stores” will increase. Samsung and Microsoft are both planning to open “mini-stores” inside of Best Buy locations this year.
Grocery is also a growing market. Walmart is targeting 180 new stores of its grocery concept. Supervalu and WinCo are planning to open stores in strategic locations. Specialty grocery store chains Whole Foods and Trader Joe’s continue to thrive and open new locations.
Retailers, whose brick and mortar locations have felt the pinch of online retail, are looking at ways to reduce footprints while maximizing efficiency and increasing online retail presence. Businesses are constantly working to remain agile in today’s marketplace.
Another category that is doing well is casual dining. This type of businesses continues to be robust. These businesses, which offer a specialized, “quality” experience, are not affected by online retail growth in the same way that other retail businesses are.
Even with the growth in retail sales, many U.S. retailers will find themselves with far too many stores than needed on a per capita basis. Retailers in the United States carry significantly larger footprints of square feet per person than counterparts in other parts of the world. The International Council of Shopping Centers reports that shopping mall space per capita in the U.S. has reached 23.8 square feet per person. This compares with five square feet per person in the U.K., 3.9 square feet per person in Japan and 2.7 in Germany. The larger footprints in the U.S. will continue to keep competition among mall retailers very keen.
Rick Newton is a specialist in the retail and industrial divisions of Cushman & Wakefield Commerce Real Estate. He can be reached at email@example.com.