Leasing Trends Shift
The retail sector continues to undergo a significant, long-term shift in response to changing consumer behavior. This transformation has included both a change in types of tenants leasing retail space and how certain categories of tenants are using their space. Service and food and beverage tenants, retailers that typically occupy a smaller footprint, have begun expanding at a rapid pace. On the other side of the coin, apparel and general merchandise retailers, who traditionally occupy larger, big box stores, have been changing how they utilize their space and reducing their store footprints in the process. Demand is now focused on smaller, more efficient spaces, resulting in an average lease size of 3,200 square feet, a new historic low.
During the first nine months of 2023, retail tenants leased 191 million square feet, approximately 9% lower as compared to the same time last year. As trends move towards a smaller footprint, there has been a decline in the number of big-box leases executed. Across the U.S., only 800 new retail leases of more than 25,000 square feet were signed during the first three quarters of 2023, which accounts for 17% of all new retail leases; this is down from 1,018 during the same period in 2022 and below the previous five-year average of 967. The share of leasing activity occurring under 5,000 square feet surpassed 50% during the first three quarters of the year for the first time on record, solidifying the change in demand.
Sources: CoStar News