Despite high-profile bankruptcies in retail giants like Bed Bath & Beyond, Tuesday Morning, and Rite Aid, tenants in US retail centers maintained their presence in 2023, matching previous years’ retention rates.
In 2023, the retention ratio for shopping centers, indicating the percentage of occupied space not vacated within a year, stood at 97.4%, aligning with recent peaks and showing a 0.8% increase compared to the closure-heavy period of 2017-2020. Though seemingly slight, this shift translates to about 42 million square feet of retail space retained throughout the year.
Several factors contribute to this heightened retention, including increased consumer spending over the past three years and the closure of underperforming stores both before and during the pandemic, which helped cleanse the market.
Additionally, limited new retail construction and sustained post-pandemic demand led to a rapid decrease in available retail space. By the end of 2023, only 6.2% of shopping center space was available for lease, the lowest level since 2006 and significantly below the prior decade’s average of 8.8%. With fewer options, tenants are more inclined to stay put, tightening the market as demand persists.
This trend benefits landlords by facilitating tenant retention and swift vacancy filling. Following a surge in vacancies during the pandemic, the average time a retail space remains unoccupied before leasing has decreased steadily, reaching 9.5 months in the final quarter of 2023, the shortest since before the Great Recession.
While oversupply was once a concern, current market dynamics and tenant behavior suggest that shopping center space is becoming scarcer, notwithstanding potential oversupply in specific segments.
