Suburban Retail Outlook: Research Brief
April 4, 2022 | Marcus & Millichap
Suburban Retail Properties Outperform as Health Concerns Abate; Downtown Locations Wait on the Return of Commuters
Retailers in suburban areas recovering more quickly. Economic shutdowns and social distancing parameters impaired all retailers, but had the heaviest impact on properties in urban corridors. Not only were health precautions often more stringent in these settings, the shift of many normally office-bound employees to remote work led to a sharp drop in daily commuter foot traffic. Newly untethered, many of these workers relocated further away from downtown areas. This, in turn, translated into fewer leisure and business trips into these areas, further weighing on foot traffic. While many of these restrictions are now lifted, tenants in central business districts continue to lag in recovery relative to their suburban counterparts. Multiple factors are behind this divergence, which is having a decisive impact on retailers’ space decisions.
Suburban vacancy drops below downtown rate for first time. Retailers in the suburbs are benefiting the most from improving health conditions. By March, retail vacancy in suburban areas had declined to 5.1 percent, 60 basis points below its recent high. The measure had also fallen below the comparable metric for central business districts for the first time since at least 2007. The CBD vacancy rate in the first quarter was 5.2 percent, just 10 basis points below its pandemic high. Rents are also climbing more quickly for suburban properties, with the average asking rate up 4.4 percent annually in March, relative to a 2.5 percent advance across the nation’s downtowns.
