Robust demand leads to strong finish for retail absorption in 2023

Retailers, especially discount stores, continue expansion track

New retail real estate data from JLL revealed that 2023 was an active year for retail, punctuated by a fourth quarter that saw demand finish strong.

Retail net absorption logged a 37.2% quarter-over-quarter leap in Q4 2023, growing to 17.6 million square feet, the highest level for the year. The fourth-quarter total was buttressed by a substantial jump in mall demand as such facilities have benefited from the rebound in physical retail post-COVID. According to a June report from Coresight, top-tier malls saw traffic grow from 2022 compared to 2019, while lower-tier mall traffic was up 10%—and mall absorption is starting to pick up in kind.

Meanwhile, overall deliveries of new retail space fell 5.1% quarter over quarter. The pickup in absorption coupled with the lack of offsetting supply pushed vacancy down 20 basis points to 4.0%, lowest since 2007. High costs are still holding back retail construction, presenting a challenge to retailers on the expansion track.

That challenge could turn out to be a big one if demand continues to outperform, with 2023 another active year for retail sector expansion. Per JLL’s figures, retailers announced 6,617 new store plans in 2023 (regardless of opening date). On the other end of the spectrum, just 4,412 store closures were announced.

Discount retailers are among the most active among expanding tenants, with Dollar Tree, Five Below, Burlington and TJ Maxx all among the top 10 retailers in new square footage signed. Dollar Tree tops the list by a considerable margin with 1.27 million square feet leased in 2023, handily exceeding second-place Target’s 761,800 square feet of new commitments.

Discounters are benefiting from bargain-hunting Americans’ response to ongoing inflation, with the Consumer Price Index (CPI) some 19% above its level in 2019. Discount retailers — chiefly dollar stores — announced  over 2,300 store openings in 2023.


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