Retail Should Expect a Busy Fourth Quarter

Retail Real Estate

With the holiday season just around the corner, there’s some good news for the retail sector according to the retail industry organization, ICSC (Innovating Commerce Serving Communities).

Despite economic concerns, ICSC’s 2023 Holiday Shopping Forecast says the sector can expect a “3.8 percent increase in October-December retail sales,” with an additional 7.6% increase for the food and beverage sector.

Shoppers intend to spend “same or more”.

Drawing on data from their Holiday Shopping Intentions Survey, conducted in September this year, ICSC adds that “eight-in-10 shoppers” anticipate spending as much or more this season as they did last year.

That figure compares favorably to the results from the 2022 survey when only 73% of shoppers stated the same.

ICSC President and CEO, Tom McGee, notes: “This year’s forecast shows the industry is balancing itself out after rapid growth over the last few years, setting retailers up for another successful holiday season.”

Even split across channels.

Another interesting finding from the survey was that shoppers intend to split their purchases evenly across different channels.

Around 41% of total expenditure for the season is expected to occur in physical stores. A further 42% will be spent online, with the remaining 17% attributed to “click-and-collect” retail purchases.

This year’s trends build on the patterns we’ve been seeing for the sector over the last few years where, despite the growing share of online sales, consumers still want access to brick-and-mortar options.

Retail real estate outlook “robust”.

What all of that means for retail real estate is that the sector can expect continued demand as we head towards the end of the year.

In fact, according to the October Commercial Real Estate Market Insights report from the National Association of Realtors (NAR): “current vacancy rates are the lowest the retail sector has seen in the past ten years.”

NAR adds that retail also currently boasts the lowest vacancy rate of all commercial real estate (CRE) sectors at just 4.1%.

Meanwhile, retail rents have stayed high, though rent growth in Q3 (at 3.5%) is seeing some moderation in comparison to 2022 (4.4%). Among retail subtypes, NAR notes that neighborhood centers and power centers have shown the strongest rent growth.

Strength ahead.

Taken together, the data seems to show a sector well-positioned to weather the current economic headwinds.

And while it’s difficult to predict whether that resilience will remain through 2024, ICSC’s Tom McGee added a vote of confidence for retail in a recent interview, stating: “My expectation is that the consumer will probably continue to be very resilient into 2024… if you’re going to continue to have employment levels or unemployment rates at historic lows, then I think retail sales will continue to be strong in 2024.”

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