Macro: US Retail Real Estate in blooming.
Retail Real Estate is in its biggest revival in years. Under the circumstance where rents for US shopping centers increased by 16%, the US retail vacancy rate fell to 6.1 percent in the second quarter, representing 93.9% of retail space have been rented, which is the lowest level in the last 15 years. Analytics in Morgan Stanley indicated that this is the first time since 1995 that more stores opened than closed in the US. Some high ends operators, like Brookfield and Simon Property Group, have recovered their occupancy rates of more than 90%.
The recovery of retail real estate in the US reflects decades-long adjustments. When E-commerce has not shown up, developers have constructed many properties to fulfill tremendous demand for onsite shopping and caused over-building. In the past several years, as a result, new sellers have chosen to renovate outdated properties rather than build new ones, resulting in a significant drop in new construction of retail properties. After e-commerce came out, more people began to buy things online, and sellers tended to expand their stores online due to the convenience and relatively low cost, causing many onsite stores to enter bankruptcy. However, when people were forced to shop online during the pandemic, many found they liked shopping in stores for items ranging from clothing to groceries. E-commerce had risen to nearly 12% of total retail sales in the first quarter of 2020 and peaked at 16.4% of total sales in the second quarter. However, in the first quarter of 2022, it goes to 14.3 %, and this moderated rate of growth confirms that people still want to shop onsite. Therefore, Retail real estate, after its adjustment, is benefiting from years of minimal construction as companies that survived through e-commerce and the pandemic look to expand. Analysts in Brookfield stated that retail sales growth in physical brick-and-mortar stores is actually growing faster than e-commerce in 2022.
It is interesting and counter-intuitive to note that the pandemic has made real estate bloom. The pandemic forced companies to accelerate the integration of online and in-person services. More companies are allowing customers to pick up or return online purchases in stores. From my perspective, the merging between online and onsite is an inevitable trend, and it is an ideal time to find some investment opportunities in the retail market.
https://www.wsj.com/articles/retail-real-estate-is-enjoying-its-biggest-revival-in-years-11664875802
