Retail Performance Gap Widens

Uneven population growth and consumer purchasing power in the U.S. continues to increase the retail sector’s performance gap, according to Jones Lang LaSalle’s U.S. Summer Retail Outlook.

“Competitive centers that are well-tenanted and ideally-located are seeing vacancy rates near 4 percent, and we expect them to see further improvements,” said Greg Maloney, president and chief executive officer of Jones Lang LaSalle Retail. “However, underperforming centers that can’t sustain the needed sales volumes to remain competitive due to their surrounding demographic may continue to trend downward, and require eventual demolition, rebranding or a conversion.”

Although overall consumer confidence dipped during the past year, an uptick occurred this summer due to rising stock and housing values and declining gas prices and debt levels, according to the report. As the year progresses, consumers are once again expected to yield to increasing unemployment rates and slow income growth.

With just 16.9 million square feet of development in the pipeline, new retail supply has dropped to the lowest level in a decade. New supply is primarily “big-box single-tenant stores anchored by discount retailers,” according to the report.

The restrained supply and ongoing store closings have kept absorption flat in 1H13. Major markets including Atlanta, Dallas, Seattle, and South Florida’s Palm Beach County saw the largest year-over-year vacancy declines in the country.

“The retail market is making strides toward improvement, but there are still major hurdles to overcome before we see complete restoration,” Maloney said.