Consumer spending momentum could be good news for retail real estate

Driven by restaurants and bars, core retail sales post record in August

Core retail sales nationwide totaled almost $509 billion in August — a new record, according to Marcus & Millichap.

Core sales have been building steam for the past year, rising 3.6% annually in August and outpacing the 2.5% growth pace set by all U.S. retail sales in the same time frame. Core sales differ from total sales in the exclusion of some consumer spending categories such as automobiles and gas, which tend to exhibit more volatility.

The momentum of core sales has been driven in large part by the restaurant and bar subsector, which saw spending increase 8.5% over the past 12 months. That’s the largest yearly bounce among retail categories and comprises almost 18% of all core sales, according to Marcus & Millichap data. Many franchises are taking notice, as seen in the expansion of several restaurant chains. Marcus & Millichap noted that Qdoba intends to open 100 stores by the end of next year, while Del Taco, Jack in the Box and Carl’s Jr. announced expansions in Florida.

That, coupled with similar strength seen in the health and personal care subsector (where spending since August 2022 increased by 7%), is good news for the single-tenant net-lease property sector. The vacancy rate within the single-tenant net-lease arena has been steady in the 4% range since last year, helping drive above-average growth for asking rents.

Sales have also been boosted by seasonal events, with retailers seeing a back-to-school shopping bump in July that carried over into the following month. Apparel shops, for example, saw consumer spending tick up by 0.9%, while department stores saw an increase of 0.3%. Retailers may also reap the benefits of an earlier start to the holiday shopping rush, Marcus & Millichap reported, with many surveys revealing that one-third to one-half of all consumers intend to begin making holiday purchases before Halloween.

There are some downside risks that are looming, including the potential impact of rising loan balances. Collective credit card debt among American consumers exceeded $1 trillion for the first time ever during the second quarter. That, combined with the return of regular federal student loan payments for the first time since the COVID-19 pandemic began, could curb consumer spending power in the final quarter of 2023.


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