Waiting for the death knell of urban retail real estate? You might have to wait a little longer, with what CBRE terms as “a strong recovery” underway.
In 10 prime retail districts tracked by the commercial real estate services company, average monthly foot traffic had recovered to 81% of pre-pandemic levels from 2019. CBRE’s projections have traffic forecast to fully recover by the third quarter of this year, potentially exceeding prior levels by the end of 2025.
Even with traffic yet to recapture pre-COVID form, many retailers are already reporting sales over pre-pandemic figures. Boutique urban retailers are seeing their business boosted by travelers as out-of-town and overseas tourists return to densely populated, high-income markets. Consider that, as of February, tourism from Europe was at 92% of pre-pandemic levels; tourism from Asia is at 72% and trending upward.
Strong storefront presence has also been shown to correlate to digital sales success, with the International Council of Shopping Centers reporting that opening a physical location increases a retailer’s digital sales by 6.9%. Closing a physical store, conversely, results in an 11.5% digital sales loss.
Such numbers are supporting the urban retail resurgence, with rents for prime retail space up by more than 9% in the Americas following big plunges in 2020 and 2021, per CBRE’s data. That rebound is nearly double the 4.8% global uptick over the same period, suggesting opportunity in the American retail market.
Some retailers, CBRE noted, capitalized on lower rents by pouncing on more premium locations for flagship stores during the down years, expecting that such anchor locations will reap benefits for decades. Others purchased space outright — a strategy that CBRE described as justified given the rosy outlook for urban street retail.
Retailers looking for prime high-street space appear to be willing to wait for the right spot, or to enter talks early for properties that remain filled. CBRE cited anecdotal evidence suggesting that negotiations between landlords and retail tenants are now happening three to four years before leases expire.
