JLL Retail Market Outlook Sees Bright Future for AI
In mid-February, JLL released their Retail Market Outlook for Q4 2023, highlighting a banner quarter for the rapidly rising American retail sector.
Inflation moderated to 3.4% by the end of 2023, a significant drop from the start of the year, yet prices remain 19.4% higher than pre-COVID levels, indicating lingering economic pressures. However, consumer sentiment, as measured by the University of Michigan index, reached its highest since July 2021, buoyed by easing inflation and stronger income expectations.
This resurgence in consumer confidence is poised to bolster retail spending in the short term. Retail sales reflected this optimism, with a 0.6% month-over-month increase in December and a notable 5.6% year-over-year growth. The holiday season was particularly strong, with a 3.1% increase in sales, driven largely by the F&B sector, which saw a remarkable 7.8% growth.
As the year concluded, the retail market experienced its highest net absorption levels, totaling 17.6 million square feet. This surge was primarily driven by increased activity in malls, signaling a strong end to 2023 for the retail sector.
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Sun Belt Market Performance
The Sun Belt continued to shine, with significant population growth contributing to a decrease in space availability by 13% below the national average. This tightening of available retail space underscores the Sun Belt’s growing importance as a hub for retail activity.
Retail expansion trends were also positive, with 6,617 new store openings announced, surpassing the 4,412 closures. This net growth indicates a healthy expansion within the retail sector, contrary to narratives around retail decline.
On the investment front, the retail property sector saw a 37% decrease in transaction volume year-over-year, with a total of approximately $57.5 billion. Despite this downturn, grocery-anchored centers emerged as a stronghold, capturing the largest share of the market volume at just over $7 billion.
The report also highlighted the strategic repurposing of big box spaces vacated between 2017 and October 2023. Discounters, fitness centers, and craft/hobby stores have been key players in filling these spaces, with Hobby Lobby and Burlington leading the way in revitalizing these large retail footprints.
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Looking Ahead to Late 2024 and Beyond
The report identifies four pivotal trends set to shape the retail landscape in 2024. These include the increasing adoption of AI to enhance shopping experiences, a reevaluation of self-checkout systems due to customer dissatisfaction, intensified competition in the grocery sector marked by Amazon Fresh’s expansion, and the broadening scope of drone deliveries, exemplified by Walmart’s ambitious plans to cover a substantial portion of the Dallas-Fort Worth area.