Retail Outlook
United States | Q3 2016
The sounds of
silence: low
construction
bodes well
for retail
Demand for retail space packs punch thanks
to strategic development
KEY TAKEAWAYS FROM THIS QUARTER’S REPORT:
CONSTRAINED SUPPLY ADDITIONS TRANSLATES TO CYCLICALLY LOW VACANCIES
• Third-quarter vacancy of 5.1 percent sits 100 basis points below its level ten years ago, at the height of
market performance.
• Net absorption for the quarter is holding momentum, at 33.4 million square feet.
• Chicago’s retailers make a comeback, absorbing just under 2.0 million square feet of space—the highest
among major markets.
• Cautious construction activity resulted in only 14.9 million square feet delivered during the quarter, which
helped push down vacancies a further 20 basis points from the previous quarter.
• The top Western markets—as well as Hawaii—seem to show particular restraint, with San Francisco,
Seattle, Orange County and San Diego all having construction levels under 1.0 million square feet in the
third quarter.
POP-UPS AND SALES GROWTH WILL MAKE THE HOLIDAYS MERRY AND BRIGHT IN 2016
• Year-to-date store closure GLA totaled approximately 90.8 million square feet, compared to 38.6 million
square feet for the same period in 2015—a 135 percent increase. Notwithstanding these headline closures,
retail on a whole will see more space absorbed than will be closed.
• NRF predicts holiday sales will climb 3.6 percent as a result of solid fundamentals, including steady job and
income gains.
• 34.5 percent of shoppers surveyed will spend more than $750 this holiday season, with younger consumers
budgeting less and older consumers budgeting more
• Pop-up stores contribute approximately $50.0 billion to annual U.S. retail sales, according to data from
PopUp Republic. Pop-ups opening up this holiday season include Google, which opened up its pop-up store
in SoHo and will showcase virtual reality areas, Google Home features and Pixel phones.
MAJOR MARKETS SEE MIXED PERFORMANCE FOR MALL AND POWER CENTER DEMAND
• Hawaii malls have absorbed over 1.2 million square feet of space and rents have increased by 24.9 percent.
In fact, over the past two years, malls have accounted for 66.1 percent of total net absorption in the market.
• The Texas markets were frontrunners in power center absorption during the third quarter. Over the past four
quarters, Dallas power center net absorption totaled over 872,000 square feet, while Houston’s absorption
over the last four quarters totaled over 765,000 square feet.
• Atlanta and Houston are seeing the greatest level of shopping center development (among JLL-tracked
markets), each with over 1.0 million square feet of space under construction.
JLL | United States | Retail Outlook | Q3 2016
2
Rents yet to catch up with tremendous
vacancy improvement
TOTAL U.S.
Type
General Retail
Malls
Power Centers
Shopping Centers
Specialty Centers
Total Retail
Retail subtype
General Retail
Malls
Total s.f.
Total Vacancy
5,220,247,465
890,195,498
747,194,107
3,509,266,944
82,579,049
10,449,483,063
3.1%
5.2%
4.7%
8.1%
5.5%
5.1%
YTD Net
Absorption
47,903,530
1,958,205
172,100
32,514,995
700,314
83,249,144
Definition
Consists of single-tenant freestanding general-purpose commercial
buildings with parking
Includes Lifestyle Centers, Regional Malls and Super Regional Malls
Power Centers
Shopping
Centers
Specialty
Centers
Total Retail
Consists of several freestanding anchors with minimal small tenants:
250,000 – 600,000 s.f.
Includes Community Centers, Neighborhood Centers and Strip
Centers
Consists of the combined retail center types of Airport Retail, Outlet
Center and Theme/Festival Center
All retail building types in both single-tenant and multi-tenant
buildings, including owner-occupied buildings
Q1 2016
Avg Rent
QOQ% Chg
YOY % Chg*
1.5%
0.9%
4.9%
0.7%
2.3%
1.3%
4.8%
3.8%
6.2%
1.6%
0.8%
3.2%
$18.07
$19.45
$18.38
$15.05
$17.21
$16.33
Examples
Drug stores, some groceries, streetfront urban
retail stores
Primarily anchored by mass merchants, fashion and
department stores
Primarily anchored by “big-box” tenants and
discount supercenters
Primarily anchored by groceries and local services
Primarily anchored by manufacturers’ and retailers’
outlets
All retail
The JLL retail property clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock,
with markets on the left side of the clock generally landlord-favorable and markets on the right side generally tenant-favorable. All of the markets have
now moved to landlord-favorable, as rents gradually head upward and vacancy continues to contract. Most of the major metros including Dallas,
Boston, San Francisco, Miami, New York and Houston have moved to a peaking market as demand grows ahead of new supply additions. Once
demand and supply reach equilibrium, the clock should strike midnight for most markets.
MAJOR RETAIL MARKETS IN PEAKING QUADRANT IN 2016
Dallas, Boston, New York Metro, Miami, Houston, San Francisco
Hawaii
Washington DC, Los Angeles
Orange County, United States
Tampa
Seattle, Orlando, Atlanta, Philadelphia
Peaking
market
Falling
market
Rising
market
Bottoming
market
San Diego, Chicago
Source: CoStar, JLL Research
JLL | United States | Retail Outlook | Q3 2016
3
Million square feet
AS CONSTRUCTION REMAINS RESTRAINED, GAP BETWEEN ABSORPTION AND DELIVERIES WIDENS
Net absorption s.f.
180.0
Deliveries s.f.
130.0
80.0
30.0
-20.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
YTD 2016
Source: CoStar, JLL Research
VACANCY NOW BELOW PRE-RECESSION LOW
The vacancy recovery in the U.S. retail market is complete; third-quarter vacancy of 5.1 percent sits 100 basis points below its level ten years ago, at
the height of market performance. Net absorption for the quarter is holding momentum, at 33.4 million square feet—a 13.1 percent increase from the
third quarter in 2015. Cautious construction activity resulted in only 14.9 million square feet delivered during the quarter, which helped push down
vacancies a further 20 basis points from the previous quarter. Rents, however, have held out on a full recovery, current levels being approximately 5.0
percent below the last cycle's peak. This is largely due to lower store productivity rates than pre-recession levels. However, given that income and
household growth are outpacing retail development, rents should approach their pre-recession levels in the next year. More major markets are
approaching their cyclical peaks, a trend that should continue for another year or so, before fundamentals start to soften.
WHILE RENTS HAVE RISEN IN THE PAST TWO YEARS, THEY REMAIN BELOW PEAK
Change in average asking rents, YOY
7.9%
3.8%
1.2%
-2.9%
-4.6%
-6.7%
-11.0%
-11.6%
2007
-3.1%
-0.4%
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: CoStar, JLL Research
PRIMARY MARKETS
Atlanta
Boston
Chicago
Dallas
Houston
SECONDARY MARKETS
Los Angeles
Miami-Dade County
New York City
San Francisco
Washington, DC
Hawaii
Orange County
Orlando
Philadelphia
San Diego
Seattle
Tampa
JLL | United States | Retail Outlook | Q3 2016
4
CHICAGO MAKES A COMEBACK
After the repercussions from the Dominick’s closings in 2013, Chicago has fought to absorb the space vacated by the big box. In the third quarter of
2016, Chicago’s retailers absorbed just under 2.0 million square feet of space—the highest among major markets.
Mariano’s, Meijer, Walmart, Stone City Kitchen & Bath Design Center and Hobby Lobby have all expanded in the area in recent quarters. Smaller
retailers have also been active, absorbing approximately 900,000 square feet per quarter in 2016.
With construction relatively low-key, Chicago should continue to see sustained improvements in vacancy and rent growth through 2018. Dallas and
Houston also remain frontrunners in retail demand, with a combined 3.4 million square feet absorbed during the quarter.
Absorption in millions s.f.
NET ABSORPTION BY RETAIL SUBTYPE—Q3 2016
General Retail
Malls
Power Centers
Shopping Centers
Specialty Centers
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Source: CoStar, JLL Research
VACANCY RATES CONTINUE TO HEAD DOWNWARD
In all of the United States, vacancy for general/freestanding retail saw the greatest decline of 70 basis points, year over year. This aligns well with the
high demand for urban retail space seen over the last few years. High-end urban retail space, especially, is seeing robust demand from retailers like
Neiman Marcus and Saks Fifth Avenue, both of which have already signed on as anchor tenants for major construction projects under way in New
York and Miami.
Mall vacancy inched down a mere five basis points, year over year, as absorption has strained to keep ahead of deliveries, barely succeeding with a
surplus of a mere 235,000 square feet over the last four quarters.
Shopping center vacancy compressed by 63 basis points. Due to negative net absorption in the third quarter, power centers saw vacancies rise 24
basis points from the same period in 2015.
YOY VACANCY COMPRESSION BY RETAIL SUBTYPE
In bps
50.0
General Retail
Mall
-100.0
Shopping Centers
Specialty Centers
24
0.0
-50.0
Power Centers
-70
-5
-63
-5
Total U.S.
Source: CoStar, JLL Research
JLL | United States | Retail Outlook | Q3 2016
5
ALL QUIET ON THE WESTERN FRONT?
The overbuilding which led to the huge fallout—especially for big boxes—during the most recent recession has left an indelible impression on
developers, or so it seems. Construction, although rising since the end of the recession, remains considerably below the levels seen in the last cycle—
a factor that has helped bolster retail fundamentals, especially vacancy rates. In fact, current construction levels represent 0.7 percent of total GLA,
compared to 2006, where space under construction totaled 2.0 percent of all inventory.
The top Western markets—as well as Hawaii—seem to show particular restraint, with San Francisco, Seattle, Orange County and San Diego all
having construction levels under 1.0 million square feet in the third quarter. Consequently, these markets are all enjoying vacancy rates below the
national average, and fundamentals should continue to improve for the next several quarters.
The space that is being built largely consists of freestanding retail (52.0 percent), much of which will take the form of urban or high-end mixed-use
centers, most notably in New York and Miami. In fact, Brickell City Centre, a $1.05 billion mixed-use development in the heart of Miami, has just
opened and will have residential and office towers, a hotel and prime retail and dining options, featuring cutting-edge design and sustainable
architecture. Tenants opening their doors in the project include Lululemon, Agent Provocateur, Bally and Suit Supply.
S.F. UNDER CONSTRUCTION BY RETAIL SUBTYPE—AS OF
Q3 2016
Q3 2016 UNDER CONSTRUCTION (IN MILLIONS OF SQUARE FEET)
Hawaii
San Diego
Orlando
Orange County
Tampa
Seattle
San Francisco
Los Angeles
Chicago
Boston
Washington DC
Miami
Philadelphia
Atlanta
Houston
New York Metro
Dallas
0.2
0.5
0.6
0.6
0.8
0.8
0.9
1.7
1.9
1.9
1.9
2.5
2.6
2.9
Under
construction
(m.s.f.)
s.f. under
construction
4.2
4.4
4.9
Source: CoStar, JLL Research
General
Retail
36.1
Malls
12.8
Power
Centers
4.9
Shopping
Centers
13.8
Specialty
Centers
1.6
Source: CoStar, JLL Research
CONSTRUCTIONS STILL WELL BELOW PRE-RECESSION LEVELS
Under construction s.f.
188.2
170.3
92.7
2006
2007
2008
49.7
41.3
38.3
44.6
2009
2010
2011
2012
62.1
63.3
67.4
69.3
2013
2014
2015
YTD 2016
Source: CoStar, JLL Research
JLL | United States | Retail Outlook | Q3 2016
6
Pop-ups and sales growth will make the
holidays merry and bright in 2016
RETAILER DEMAND STILL SIGNIFICANT DESPITE LARGE
SPACE CLOSURES
CASH REGISTERS WILL STILL JINGLE THIS HOLIDAY
There has been considerable concern about the number of store
closings announced in 2016. Although the number of announcements
for GAFO retail is down approximately 45.0 percent from the same
period in 2015, as seen in our Q2 Retail Outlook Report, the square
footage of space to be closed has risen significantly. This is largely due
to big closures by department stores such as Macy’s and sporting
goods retailers such as Sports Authority.
Retail sales showed modest year-over-year growth of 2.7 percent in
September (3.4 percent excluding gas stations), which, while
unimpressive, is consistent with retailers selling a lot of merchandise.
However, on a more positive note, growth included several
discretionary categories such as building supply stores and restaurants.
Apparel stores have been impacting by falling department store sales
and store closures.
Year-to-date store closure GLA totaled approximately 90.8 million
square feet, compared to 38.6 million square feet for the same period in
2015—a 135 percent increase. Notwithstanding these headline
closures, retail on a whole will see more space absorbed than will be
closed. Among retail categories planning to open the greatest amount
of square feet include supermarkets, hardware stores and sporting
goods retailers. Retailers with aggressive opening plans include Dick’s
Sporting Goods, Kohl’s, Charming Charlie, Fresh City Market, Ace
Hardware and iPic Theatres.
While the U.S. election introduced greater uncertainty for sales growth
for the remainder of the year, NRF predicts holiday sales will climb 3.6
percent, as a result of solid fundamentals, including steady job and
income gains.
ALTHOUGH RETAIL SPACE BEING CLOSED IS HIGH, NET
ABSORPTION REMAINS ROBUST
Net absorption
Announced store closings—GAFO (GLA)
Results from our Retail 2016 Holiday Survey show that many
consumers—especially Boomers—will spend big this holiday season.
In fact, 34.5 percent of shoppers surveyed will spend more than $750
this holiday season. Younger consumers are budgeting less; more than
60.0 percent of millennials and Gen Xers rank low prices as a priority
when choosing where to shop; baby boomers and consumers over 70
will focus on quality when making their shopping choices.
RETAIL SALES SEES MODEST YEAR-OVER-YEAR GROWTH
203.5
110.5
(58.9) (55.3)
121.6
76.6
3.5 60.2 56.7 62.5
(71.2)
(68.7) (56.0)
(33.5) (24.5)
106.0 92.3
83.2
(62.0)
(41.4)
(90.8)
(132.2)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
Source: CoStar, JLL Research, ICSC
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-12.0%
Jan 2007
Jul 2007
Jan 2008
Jul 2008
Jan 2009
Jul 2009
Jan 2010
Jul 2010
Jan 2011
Jul 2011
Jan 2012
Jul 2012
Jan 2013
Jul 2013
Jan 2014
Jul 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Retail Sales chg YOY
Source: Economy.com
JLL | United States | Retail Outlook | Q3 2016
7
POP GOES THE HOLIDAY SHOP
As the holiday season approaches, specialty, theme and gift retailers are once again popping up across the United States. Pop-ups appeal to
consumers for several reasons, including unique product offerings, more personal shopping experience, support of local businesses and high-quality
goods. Pop-ups not only promote brand awareness and engagement for retailers, but they can also provide a strong boost to sales. In fact, pop-up
stores contribute approximately $50.0 billion to annual U.S. retail sales, according to data from PopUp Republic.
Pop-ups opening up this holiday season include Google, which opened up its pop-up store in SoHo and will showcase virtual reality areas, Google
Home features and Pixel phones.
Wet Seal is also opening 13 pop-up stores this holiday in nine states, including Illinois, Florida, Georgia and Pennsylvania.
CONSUMERS SHOP AT POP-UP STORES TO FIND UNIQUE, SEASON-SPECIFIC PRODUCTS
% of respondents
61.0%
Seasonal products
39.0%
36.0%
34.0%
30.0%
Unique services
Local shopping
Optimal pricing
Fun experience
Source: PopUp Republic
OTHER POP-UP STORE EXAMPLES
• American Girl is opening seven temporary locations in markets such
as Philadelphia, Portland and Detroit.
• Nordstrom has launched Pop-in@Nordstrom shops which feature
specially curated merchandise by Olivia Kim each month.
• Nanette Lepore is opening up a holiday pop-up shop on 35th Street,
New York.
• The Row DTLA has opened a pop-up shop collection called Holiday
Collective, which features 11 vendors offering apparel, home goods,
food and accessories.
• Bailey44 and Ali & Jay are both opening up 1,500-square-foot
holiday pop-up stores in Santa Monica Place.
• Reid's Fine Foods will open up a pop-up shop in North Carolina,
featuring their signature product, gift baskets and holiday items.
• Colorado Mills has opened six holiday pop-ups: lpaca World,
Go!Calendar Games and Toys, Hickory Farms, PSI Airbrush Co,
Novelty Signs and DIY Tie-Dye.
• The North Face has opened a temporary concept shop called Urban
Exploration in San Francisco which focuses on its premium
streetwear collection geared toward urban consumers.
JLL | United States | Retail Outlook | Q3 2016
8
Major markets see mixed performance for
mall and power center demand
MALLS
For malls, most of the
major markets have now
moved to landlordfavorable. New York,
San Francisco, San
Diego, Los Angeles,
Miami and Hawaii are
seeing low vacancies and
are therefore peaking.
Conversely, Chicago
and Philadelphia are
bottoming markets,
who have yet to see
meaningful vacancy
compression or
rent gains.
San Francisco, Los Angeles,
San Diego, Miami
Hawaii, New York Metro
Boston, Orange County, Seattle
Orlando, Washington, DC,
Atlanta, Dallas, United States
Peaking
market
Falling
market
Rising
market
Bottoming
market
Houston
Tampa
Chicago,
Philadelphia
MALL NET ABSORPTION CHANGE | Q3 2016 (s.f.)
Washington DC
Orlando
San Diego
Miami
Seattle
Chicago
Philadelphia
San Francisco
Tampa
Orange County
Houston
Boston
Atlanta
Dallas
Los Angeles
New York Metro
Hawaii
-170,783
-94,977
-39,473
-20,696
-14,746
-7,899
-2,187
2,792
20,369
28,104
30,765
35,759
55,623
102,810
179,798
350,417
Hawaii and New York saw the greatest
absorption in mall space during the third
quarter. Thanks to strong retail sales, boosted
by tourism, demand for space in Hawaii remains
very healthy. In the past four quarters alone,
Hawaii malls have absorbed over 1.2 million
square feet of space and rents have increased
by 24.9 percent. In fact, over the past two years,
malls have accounted for 66.1 percent of total
net absorption in the market.
In New York metro, 335,000 square feet of retail
space in the World Trade Center was delivered,
all of which has been leased.
579,277
Source: JLL Research, CoStar
JLL | United States | Retail Outlook | Q3 2016
9
POWER CENTERS
San Francisco, Dallas, New York Metro
Washington, DC, Hawaii, Tampa
As power centers have
seen strong improvement
over the last two years,
metros are either in the
peaking or rising
market quadrants.
Orange County, Miami, Seattle,
Philadelphia, Houston, United States
Peaking
market
Falling
market
Rising
market
Bottoming
market
Los Angeles, Orlando, Chicago
Atlanta
San Diego, Boston
POWER CENTER NET ABSORPTION CHANGE | Q3 2016 (s.f.)
Tampa
Los Angeles
Orlando
San Diego
San Francisco
Seattle
Orange County
Hawaii
Miami
Atlanta
Boston
Chicago
Philadelphia
New York Metro
Washington DC
Dallas
Houston
-155,373
-109,742
-108,453
-107,865
-90,420
-59,258
-53,997
-45,285
-41,790
285
10,080
22,651
25,910
49,058
68,723
278,822
328,695
The Texas markets were frontrunners in power center
absorption during the third quarter. Over the past four
quarters, Dallas power center net absorption totaled
over 872,000 square feet—comfortably over deliveries
of 708.0million square feet. As a result, power center
vacancies fell 60 basis points in the last year to 3.0
percent, while rents inched up 3.8 percent.
Houston, although seeing healthy absorption in its
power centers, has a slightly different overall picture.
Absorption over the last four quarters totaled over
765,000 square feet, which fell short of the 990,000
square feet delivered during the same period. As a
result, although rents rose 5.4 percent, year over year,
vacancies bumped up 70 basis points to 4.2 percent.
However, there should be no cause for alarm, as the
vacancy rate is still some 200 basis points lower than it
was in 2006 at the height of the previous cycle.
Source: JLL Research, Q3 2016, CoStar
JLL | United States | Retail Outlook | Q3 2016
10
SHOPPING CENTERS
For shopping centers, the
markets on the clock are
somewhat closely
clustered in the rising
segment, as significant
improvement has only
begun to manifest in
recent quarters. As
conditions continue to
improve, more markets
should gradually
move past nine o’clock
toward midnight.
Dallas, San Francisco,
New York Metro
Houston, Boston, Miami
Houston, Miami, Washington, DC,
Orange County, Hawaii
San Diego, Los Angeles, United States
Peaking
market
Falling
market
Rising
market
Bottoming
market
Tampa, Atlanta, Orlando, Seattle
Philadelphia
Chicago
SHOPPING CENTERSET ABSORPTION CHANGE | Q3 2016 (s.f.)
New York Metro
San Francisco
Boston
Tampa
Hawaii
Miami
Orange County
Seattle
San Diego
Chicago
Orlando
Los Angeles
Washington DC
Philadelphia
Dallas
Houston
Atlanta
3,250
11,661
51,715
121,167
125,682
127,933
130,993
161,172
208,607
262,935
267,719
422,270
511,105
513,927
801,343
1,073,694
1,153,641
Atlanta and Houston are seeing the greatest level of
shopping center development (among JLL-tracked
markets); each with over 1.0 million square feet of
space under construction. Atlanta, in particular, is
seeing a high relative proportion of shopping center
construction, accounting for 40.1 percent of all its
development activity in the last quarter. On a positive
note, space absorbed in this category has totaled
nearly three times the amount of space delivered in
the last year.
Source: JLL Research, CoStar
JLL | United States | Retail Outlook | Q3 2016
11
For more information, please contact:
Greg Maloney
President & CEO
Retail Americas
+ 1 404 995 6315
[email protected]
James Cook
Americas Director of Research, Retail
+1 317 810 7191
[email protected]
Keisha Virtue
Senior Research Analyst
Retail Americas
+1 954 990 0844
[email protected]
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased
value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0
billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its
clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square
meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment
Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle
Incorporated. For further information, visit www.jll.com.
About JLL Research
JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real
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