Retail Makes Strides in the Midwest
The retail sector within the Midwest has entered 2022 with a unique outlook driven by factors like evolving workplace flexibility, increasing market inflation, lingering supply chain issues, and a strong consumer desire for experience. Since the pandemic, retailers in the Midwest have improved the way they operate and embraced the omnichannel approach. Building a solid digital presence to offer app purchases and food delivery creates a greater number of ways for customers to buy. Retailers who focus on both online space and have strong brick-and-mortar locations will continue to perform well as they become faster and more efficient.
Developers and national merchants are watching out for growth markets, and the Midwest makes sense for many investors alike as population growth rates exceed the national rate, and the outlook for net employment is one of the highest in the nation.
Chicago’s suburbs are jumping at a record-fast pace as they charge into recovery from the pandemic. By mid-April 2022, the Centers for Disease Control and Prevention (CDC) lifted its mask mandate on all forms of transportation conveyances. Consequently, retail market rents began to rise again around the Chicago area.
Annual sales volume now sits at $4.7 billion, CoStar’s highest recorded yearly volume.
In addition, the vast majority of the 360,000 square feet of new retail projects delivered this year were pre-leased, as are the 1.3 million square feet of retail space currently under construction. Fitness centers, discount stores, and off-price fashion retailers are thriving the most as they adapt to the rise in e-commerce.
Fortunately for Indianapolis, household wealth is up and is flush with cash because of fiscal stimulus, and more recently, healthy wage growth. Excess savings are estimated to total more than $2 trillion, which should support continued gains in spending. To date, there is no indication of weakness in leasing trends. More than 2.0 million square feet of space was leased in 2021 and another 700,000 square feet year to date as of May, in line with pre-crisis norms. Most of the new construction slated to come online in 2022 are single-tenant properties, with most of these buildings pre-leased.
The retail sector in Louisville remains particularly vulnerable as the economy recovers from the pandemic-induced recession. While social distancing measures have moderated, a sustained level of high infection rates continues to weigh on consumer sentiment and retailer revenues. Retail vacancy in Louisville sits at a historic low, and a limited development pipeline will keep vacancy near its current level over the coming quarter.
However, retail sales volume reached new highs with $363 million trading hands over the trailing 12month period. The year is off to a strong start with first quarter sales totaling over $80 million, well above the first quarter average of the prior three years.
The population in Minneapolis has increased by more than 12% since 2010, with employment growth increasing by 0.53% year-over-year. According to the U.S. Bureau of Labor Statistics, the unemployment rent is down to 1.6%. Employment in the metro was increasing at a solid clip of 3.6 percent year-over-year, or a gain of about 69,000 jobs. Sectors seeing the fastest signs of improvement include leisure and hospitality, construction, manufacturing, and professional business services. Retail rents in the Minneapolis market were rising at a 3.9 percent annual rate during the third quarter of 2022 and have posted an average annual gain of 2.3 percent over the past three years.