Economists' Outlook

Housing stats and analysis from NAR's research experts.

Commercial Weekly: Increase in Demand for Retail Space

U.S. consumers have been the driving force behind the continued recovery that took place in Q2 2021, which saw demand for retail space increase.

COVID-19 vaccinations coupled with the easing of pandemic measures and fiscal stimulus brought consumers out, with some returning to the office and participating in pre-pandemic activities such as eating out and sporting events. As of September 13, the CDC reported that more than 380 million COVID-19 vaccine doses have been administered across the U.S. and more than 178 million people are considered fully vaccinated. Fiscal stimulus by way of direct checks issued to millions of consumers in addition to extended and increased unemployment benefits has result in increased income over the first six months of 2021. Motivated by the increase in income, consumer spending increased.

Total retail sales continued to steadily increase from the beginning of the pandemic through Q2 2021 as sales increased from $1.3 trillion in Q2 2020 to $1.6 trillion in Q2 2021, for a year-over-year growth rate of 28.2%. The improvement in sales has come at the expense of e-commerce which saw its percentage of total retail sales decrease from 15.7% in Q2 2020 to 13.3% in Q2 2021.

The increase in retail sales is more than welcome, as retailers across the spectrum have benefited. Along with increasing retail sales, the number of retail store closings have decreased, elevating demand for retail space. More than 8,736 retail stores closed last year according to Coresight Research and the pace has been slower thus far in 2021. As of September, more than 4,748 stores are set to close in comparison to 4,616 openings which results in a 3% difference for closures, in comparison to a nearly 143% difference over the same period a year ago. Currently, U.S. store openings are ahead of the pace recorded for both 2018 and 2019.

Demand for Retail Space Increases

During the past three months ending September 13, there was a net absorption gain of 19,070,298 sf. Of the six categories of retail assets covered in this report, absorption for the past three months was negative in malls (-1 million sf) and other (-463,697 sf), which is more than offset by the increases in general retail, neighborhood centers, power centers, and strip centers.

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The past three-month net absorption gain is substantially more than the 12-month net absorption recorded in Q1 2021 (-17.4 million sf), Q4 2020 (-24.6 million sf), and Q3 2020 (-17.5 million sf). Twelve-month net absorption for retail space eventually turned positive in the Q2 2021 with net absorption totaling 11.6 million. While demand for retail space decreased amidst the pandemic, the retail property market pivoted in Q4 2020 with total positive net absorption reaching nearly 28 million sf through Q2 2021.

Another indicator of increasing demand is leasing volume. According to NAR’s analysis of CoStar® data on 390 metro areas, leasing totaled 65,144,289 sf in Q2 2021. This level of demand is substantially higher than the 44,924,273 sf recorded in Q2 2020 at the peak of the pandemic and higher than the 60,598,011 sf recorded in Q1 2021.

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Nationally, the retail vacancy rate stood at 5% in Q2 2021, which was marginally higher than the 4.6% in Q1 2020 as rates have remained relatively stable over the year thus far. Across the retail property categories, the vacancy rate was highest in neighborhood centers (7.7%) while malls, strip centers, other, power centers, and general retail were 7.4%, 6.0%, 5.9%, 5.7%, and 3.1% respectively. Strip centers are anchorless or have a smaller convenience store anchors such as a mini-mart, and these properties have performed favorably in fulfilling consumer needs.

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Although vacancy rates are slightly increasing in the majority of markets and across some retail properties, retail vacancy rates on-the-whole are significantly below that of the majority of the past 10 years. As such, rents have faced little pressure, but they are trending slightly higher. Rents rose over the past three months ending September 13 to .9%, up from Q1 2020 (.4%) and Q2 2020 (.2%). The year-over-year percent change in rent growth for retail was 1.2% in Q2 2021.


Consumers not only have more funds to deploy, but they are also more confident than they were a year ago. Despite consumer confidence decreasing in August to February 2021 levels, consumers have some confidence but have concerns with respect to the Delta variant and inflation, and as a result total retail and food service spending cooled in July. Despite the decrease in spending in July, more consumers are becoming fully vaccinated and are returning to pre-pandemic activities; these activities have seen significant spending increases as consumers were unable to participate in them within the past year. Activities range from sporting events to the traditional dine-in experience. As the economy and commercial real estate continues to return to normal, retailers will as well. As opposed to shuttering retail locations, retailers will pursue the growth opportunities they had pre-pandemic with an emphasis on e-commerce. The omnichannel is no longer a distant goal but one that is a necessity today considering consumer spending habits highlighted and accelerated by the pandemic. Expect e-commerce and physical retail sales to continue to increase and as a result, so will the demand for retail space.