The fundamentals, and the closures
Throughout 2019, retail real estate vacancy rates held steady. You can credit solid consumer spending. Reis reported a national vacancy rate of 10.1 percent in Q3 2019. That’s essentially unchanged from 10.2 percent to start the year. CBRE also noted continued demand for grocery-anchored neighborhood community and strip centers—something Buxton believes is supporting high occupancy levels.
Meanwhile, retail rents reflect this steady demand, which is leading to some of the aforementioned issues that didn’t exist out of the Great Recession. Average retail net asking rates increased on both an annual and quarterly basis in Q3. Gross median retail rent was $22 per square foot in Q3, per the National Association of Realtors.
This might seem counter intuitive to what we’re seeing on the ground, where it feels like far more restaurants are retracting these days than growing.
A recent study from IHL Group on 1,660 U.S. retailers and restaurants with 50-plus locations suggested, surprisingly, the industry is not actually suffering from a surplus of store closures. It found that retailers and restaurants witnessed a net gain of 8,575 combined stores from 2017–2019.
But this is something that has multiple layers.
The study said seven of nine retail segments were projected to see an increase in store counts last year over 2018. The only two segments projected to experience a decrease in total store count were department stores and specialty soft goods, like shoes.
In fact, the store closures were driven by a small number of failing chains. It isn’t an industry-wide epidemic. Twenty companies in the study accounted for 75 percent of all projected net closings in 2019.
Retailers and restaurants were actually adding more units than they were closing. There were 2,965 more openings announced for 2019 than closures.
In the worst years (2017 and 2018), sales were still up. Retail figures bumped $232 billion in 2017 and $36 billion in 2018. Amazon’s sales lifted about $29 million in 2017.
However, while the ratio of openings to closings remained positive from 2017–2019, volumes slowed. There were fewer openings and closings in 2019 than in the prior two years. Suggesting, to Buxton’s observation, we might be reaching an equilibrium.
In sum, what you’re seeing today might be less about closures and more a lack of net growth. Many chains are standing pat and trying to focus on current assets.
Take this quote from Subway business development agent Todd Carpenter: “Today, I’m proud of the organization for refocusing the brand from growth in number of locations to a laser focus on developing the franchise owner’s skill sets to run better and smarter—from profitable operation of our shops, to hiring and training staff, to how we must use technology to achieve these goals.”
Here’s a look at IHL’s data:
Net retail/restaurant openings versus closings
- Openings: 18,532
- Closings: –14,404
- Net change: 4,128
- Openings: 21,213
- Closings: –19,731
- Net change: 1,482
- Openings: 11,393
- Closings: –8,428
- Net change: 2,965