Still-growing restaurant patronage gives retail tenancy a boost

Still-growing restaurant patronage gives retail tenancy a boost

Retail tenancy of late is getting a boost from stout restaurant and bar performance, according to data from Marcus & Millichap.

July’s national employment report included the addition of 74,100 new jobs at food and drink establishments, suggesting that consumers are increasingly eating out and socializing at bars at a time when grocery store prices are heightened due to inflation. Consider, for example, that prices for food at home increased 13.1% year over year in July — the largest annualized jump since 1979. Costs for food away from home, on the other hand, rose by only 7.6% over the same period.

Consequently, spending at restaurants and bars was up 11.6% from July 2021 to July 2022. An increase in foot traffic has helped accelerate already-strong single-tenant leasing. The subsector vacancy rate fell to 4.5% in June, only 10 basis points above the all-time low.

Robust core spending on the whole, in fact, is encouraging vendor expansion throughout the retail sector. With the rate of absorption more than tripling completions during the 12 months that ended in June, the retail vacancy at that time matched the pre-pandemic level of 4.9% seen at the close of 2019.

Entering July, the availability of retail space was below the national average in 23 major markets. Marcus & Millichap posited that absorption may continue to outpace supply growth over the near term in these areas as population growth continues to amplify local retail demand.

Such figures have helped fuel investor confidence as the retail sector continues its rebound, even with the uneven state of the economy. Activity throughout the 12-month period ending this past June was broad-based, with deal flow rising by at least 40% during that time, boosted by sales in secondary metros, Marcus & Millichap reported.

Transactions began to show some signs of cooling in the second quarter, but the number of closed deals remained at the same level as the prior five-year quarterly average. This could offer some reassurance to lenders and investors, given the current environment of rising rates and higher credit standards.

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