Retail’s Return: Is the Sector 2024’s Sleeper Hit?

Demand is outstripping supply in a complex market that's coming back with gusto.

Macy’s Herald Square in New York City, the department store chain’s flagship location. Traditional department stores improved their performance in December 2023. Image by Fotios Tsarouhis

While it’s a hyperbole to call the recent turn in retail’s fortunes a renaissance, it almost seems appropriate considering parts of the sector were left for dead not long ago. The past year was an endurance test of sorts for the industry, which proved to be both resilient and able to adapt to change.

Colliers, in a late-2023 report, pointed out that retailers are “prime for expansion” and predicted “a surge in fund allocations by institutional investors in 2024.” Writing in August, Todd Caruso, retail investor leader for the Americas at CBRE, marveled at the space’s “unparalleled growth” over the past several years.

Retail is not going anywhere, said Oscar Parra, CFO of Newport Beach, Calif.-based Pacific Retail Capital Partners. “It went through a rationalization period that’s probably still ongoing, but started somewhere in 2015 and early 2016, where you really started to see the capital markets adjust around the evolution of retail.” In the nearly 10 years that have followed, there have been few new construction starts, something especially true for larger shopping centers and the much-beleaguered American mall.

“The biggest challenge that retail has today is the lack of quality supply,” said Anjee Solanki, national director of retail services and practice groups at Colliers, who noted that successful small businesses seeking to open second locations are often important contenders for space. “It’s really telling that retail demand outpaced supply in all of 2023,” added Nicole Larson, Colliers manager, national retail services. “I think that just shows you that the retailers are looking to take on more space, it’s just that the construction is not moving fast enough.”


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Prior to 2019, the perception was that the sector was oversupplied, said Larson. “We’re at a point now where it’s harder to find that Class A quality space.” Some 55 million square feet of retail space is under construction nationwide, with 10 million square feet, on average, having been delivered each quarter of 2023, according to Colliers’ figures.

“Retail, in many respects, was kind of a bad word for a long time, even before COVID-19, obviously, with the trends in e-commerce,” said Max LaVictoire, principal at Hodes Weill & Associates. “People are coming back to shopping at stores and, at the same time, you’ve seen very little supply creation.”

Niche by niche

Retailers’ ability to be flexible in their store formats is one reason for the sector’s resiliency. “You’re starting to see retailers become much more nimble, adapting to not only the market and what the consumer within that market is seeking but also from a physical space configuration (standpoint),” weighed in Solanki.

“A lot of retail investors are probably looking to do more with less space,” Parra added. “There are portions of retail that are doing really, really well. When we say retail it’s not one monolith. It’s just different pieces.”

Some subsectors are also much healthier than others and are projected to stay that way. “The fundamentals around retail are still quite strong from an investor perspective,” said Solanki, noting that anchored opportunities are particularly attractive, none more so than grocery-anchored ones which, unlike most types of outlets, performed well both during and after the COVID-19 pandemic.

“Retail is a big category, and the subsector matters a lot,” reasoned LaVictoire. “There’s not an interest in retail broadly, it’s pretty specific subsectors that are demonstrating strong supply and demand fundamentals right now and are still at attractive yields.”


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These include service-oriented retail, which encompasses cellphone stores, barbers and salons, as well as gyms, yoga studios and other wellness-focused enterprises. The strip mall-type properties that often house such businesses have “climbed the list, as far as investor interest (is concerned),” added LaVictoire, noting that such service-oriented businesses are poised to be among retail’s best performers. “It’s harder to move those kinds of functions online into the e-commerce space,” he observed.

Another business model that is difficult to replicate online is restaurants. Dining and ordering out remain popular options and as long as restaurants exist, they will require physical space, even for an entirely takeout business. Dining in, meanwhile, remains extraordinarily popular, something that makes restaurants all the more secure, much more so than other traditional tenants.

“You have restaurants that are 10,000 square feet (that are) doing $10 million (to) $12 million in sales, which is mind boggling,” said Parra. “If you look at certain department store locations today, they might do the same volume in 100,000 to 150,000 square feet that a restaurant does in 10,000 square feet, so there’s a radical kind of shift there.”

However, when renting to restaurants, location is paramount. Proximity to residents is a major factor, according to Parra, as is walkability.

Suburban trend

While the sector is expected to be competitive across the board, the suburban market “is definitely where you’re seeing the growth from a landlord perspective,” said Solanki, emphasizing that the healthy rent growth in suburban markets is a result of hybrid work and a pandemic-era shift from city living.

In analyzing visitor data across the U.S., Solanki observed that daytime visits to grocery stores are not only up overall, but noticeably up during the week compared to pre-2020 figures.


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The reshaping of habits and geography does not end at the urban-suburban divide. While Sun Belt markets such as Miami and Austin, Texas, have taken off in recent years, nearby cities like Fort Lauderdale, Fla., and San Antonio are becoming attractive due to space scarcity. “I don’t want to call them emerging markets, because I think they’re pretty established at this point,” said Larson, opting for “secondary hot markets. It’s not too far, the population demographics are there, the income is there.”

Holidays buoy department stores

The traditional department store may not be Fort Lauderdale’s newest boutique, or even a convenient stop on the way home, but in an era of experiences, it’s still a holiday classic. This may explain why the niche did well this past holiday season, while mall vacancies were down quarter-over-quarter at the end of 2023.

“That hasn’t been very typical for the earlier quarters of 2023,” said Larson, who mentioned that some of the movement may have been from retailers trying to grab mall space before the holiday rush. Non-mall shopping centers did not see a similar increase.

“Right now, we’re seeing the mall vacancy rate sit at about 8.5 percent at the end of 2023,” added Larson. Non-mall shopping centers are at 4.9 percent. “There still is a pretty big difference between the centers and malls,” she noted, adding that this was not the case in 2019. “The pandemic really sort of separated the two.”

In addition to experience and nostalgia, there are often overlooked benefits to department store shopping, Larson pointed out. “The consumers want that sort of overall experience and also, if you’re having a hard time looking for an item for your family member, (it’s) the best place to go because you’re going to sort of get everything in a one-stop-shop type of place.”

How bullish are investors?

“There’s a segment of the investment community that’s still quite bullish around retail, especially since the year-over-year has been positive,” said Solanki, adding that investors that previously pulled out of the sector could also be looking to reenter the space.

While the broad-based institutional investor set that will pour money into the sector includes traditional players, both foreign and domestic, the level of interest and ultimate return cannot yet be predicted.

“The fact that you can generate an attractive cash-on-cash yield, I think does kind of naturally attract more cash flow-focused investors, whether that’s insurance companies or pension funds, but at the same time there’s an argument to be made for yield compression,” said LaVictoire. “What we’re seeing now has not been a big rotation into retail. It’s more investors starting to spend time on retail.”

The general sentiment is the better macroeconomic conditions point to strong results from retail given the sector’s overall improving metrics. “As the interest rates drop, capital will start to flow and, when that happens, you’re going to start to see capital moving,” said Parra.

However, it remains unlikely that there will be a major flood of investment activity. While positive macroeconomic developments will likely signal an uptick in allocations, it is likely to be a steady rise. “We do think that you’ll see institutional interest in the larger retail format space,” concluded Parra. “It’s going to happen gradually over time as the interest rates start to drop and people get better visibility as to the capital markets.”

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