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The retail landscape is in a constant state of flux, adapting to shifts in consumer behavior, escalating rents, and fluctuating interest rates. Notably, there is a transformative wave in the types of tenants occupying retail spaces, with non-traditional sectors such as healthcare, fitness, and childcare reshaping the industry.
This trend is not only a result of non-traditional users taking over retail spaces, but it extends to traditional retailers strategically adjusting their spatial utilization. For instance, smaller retailers like those in the food and beverage sector are expanding their footprint, while larger traditional retailers are downsizing, resulting in a growing demand for smaller, more efficient spaces.
Remarkably, the average size of retail spaces during the initial three quarters of 2023 reached a historic low of 3,200 square feet. Across the first 9 months of the year, retail tenants leased a total of 191 million square feet of space, reflecting a shift attributed to smaller lease sizes and a decline in big-box leases. Major players like IKEA and Target are capitalizing on this trend, introducing micro-retailing with small format stores tailored to urban consumers.
During the first three quarters of the year, only 800 new leases exceeding 25,000 square feet were executed, a notable decrease from the previous year and the five-year average. This shift, accounting for 17% of all new retail leasing activity, is the lowest share on record, with over 50% of leasing activity concentrated in spaces under 5,000 square feet. This trend directly mirrors changing consumer preferences, rising rents, and increasing interest rates.
In 2023, furniture retailers experienced a notable shift with only 21 new retail leases, a significant decrease from 44 in 2022 and the five-year average of 36 per year. This decline, reflective of evolving consumer preferences and a dynamic leasing market, resulted in a total leased square footage of 667,486, marking a 44% decrease from the preceding year. Concurrently, the average lease size mirrored the industry trend toward smaller spaces, shrinking to 31,785 square feet.
As we look ahead to 2024, these factors will continue to influence the retail property sector, paving the way for diverse outcomes in response to the evolving dynamics of the industry.
About the Author: Ben Haverty
Ben has over 30 years of experience as an executive and entrepreneur in the furniture industry, operating retail stores, home delivery warehouses and regional distribution facilities. As the lead of Colliers Furniture Real Estate Group, Ben works with Colliers integrated real estate services to provide comprehensive solutions for every stage of the furniture industry supply chain, ranging from retail showrooms to home delivery furniture warehouses and wholesale distribution centers. Contact Ben to connect with Colliers’ team of professionals to accelerate your success in the home furnishings industry. For more information, visit www.colliers.com/en/experts/ben-haverty.