Grocery, Fitness Emerge as Retail Market Bright Spots
As e-commerce accelerates its sweeping disruption of the traditional U.S. retail industry throughout national and Philadelphia commercial real estate markets, store tenants that offer experiences and use smaller spaces are driving demand for brick-and-mortar leases, according to a CoStar analysis.
Tenants offering something to do rather than buy — think yoga studios, ax-throwing clubs and trampoline parks — are emerging as viable alternatives to big-box retailers in the U.S. commercial real estate market – including Philly retail space, CoStar economists say in a new video (available by clicking here). Discount apparel stores, fitness concepts and grocers, the latter two being something consumers don’t always seek online, are the fastest-growing users.
This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Tenants, according to two CoStar market analysts, are helping to fill large blocks of space vacated by more traditional retailers.
“Landlords with empty big-box space are finding other creative approaches to replace traditional tenants,” said Abby Corbett, managing director and senior economist in CoStar’s Chicago office.
The rise of e-commerce throughout U.S. and Philadelphia commercial real estate listings has contributed to an overall cut in spending at physical retail stores by 7 percent and counting, Corbett said.
In addition to experiential users, retail landlords involved in national and Philadelphia commercial real estate properties also are finding success among smaller tenants. More than 50 percent of the leases signed in 2019 were for spaces smaller than 5,000 square feet, and 80 percent of all leasing activity in 2019 has taken place in spaces smaller than 25,000 square feet.
“While leasing activity has decelerated over the past year, tenants clearly remain focused on incorporating physical space in their retail strategies,” said Galina Alexeenko, managing director and senior economist in CoStar’s Atlanta office.
Despite the demand for these nontraditional tenants, overall retail demand is weakening. Over the past year, net absorption — the change in the supply of commercial space — totaled 30 million square feet, a record low. Just 10 million square feet of new retail space broke ground in the third quarter, adding up to a total of 67 million square feet of space in the national pipeline. – By Cara Smith-Tenta, CoStar Realty Information Inc.
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