Retail Sales Spur Confidence in Sector’s Recovery

Strong consumer retail sales may give the sector a much needed confidence boost. March’s 5.6 percent increase in core retail sales is the strongest growth rate over any 10-month period since 2006, according to Hessam Nadji, managing director of research services for Marcus & Millichap, in a recent blog post.

Store-based retail sales, which exclude automobiles, gas, online sales, and groceries, climbed 0.8 percent last month, marking a year-over-year increase of 4.3 percent. Historically, surges in store-based retail sales have prompted retailer expansion, Nadji says. Given the strength of recent retail activity, retailer expansion may increase further as confidence in the recovery’s sustainability takes hold.

Net absorption in 1Q11 was nominally positive nationwide, but last year’s trend will likely repeat, with space demand growing during the remainder of the year. With store-based sales expected to continue to increase, more than 93 million square feet should be absorbed nationwide this year, reducing overall vacancy to 9.5 percent. Rent growth is expected to pick up during the second half of the year, resulting in a 1.8 percent increase in effective rents, Nadji reports.

Retail sales growth also will spur space demands from consumer goods storage and distribution companies and as well as retailers that operate fulfillment centers for online transactions. The increasing demand also should contribute to a modest recovery in the industrial property sector, with net absorption of 57 million sf and a 0.7 percent rise in effective rents expected by year-end.