research brief (MAY).PNG

Healthy labor market keeps consumption on solid footing. Retail spending increased steadily in April, rising 3.2 percent on an annual basis and extending a trend of stabilized consumption. The tight job market continues to fuel the retail sector as unemployment rests at a 50-year low, prompting more discretionary spending as employers boost wages to attract talent.

Familiar faces headline steady retail sales growth. Single-tenant-oriented retailers, including bars and restaurants, home improvement vendors and pharmacies, continue to drive spending. Yearly sales growth for these retailers ranged from the upper-3 to upper-4 percent band last month, well outpacing other retail categories. Growth rates for general merchandise and grocery sales were clustered in the mid-2 percent realm, while a variety of other categories recorded negative changes. While spending at single-tenant establishments is further supported by rising levels of discretionary income, performance among these assets has remained consistent as the average cap rate has stayed in a tight range for the past three years. Yields for other commercial property types have shown more deviation during that span, pointing to the stability of the single-tenant sector.

Online ordering helping brick-and-mortar retailers boost efficiency. Historically high consumer confidence is benefiting bars and restaurants as this category has averaged 6.2 percent growth over the past year, outperforming most other retail sectors. Increased food delivery orders are underpinning the accelerated pace of growth; however, they are changing restaurant layouts, encouraging kitchen-only sites to counter rising delivery costs. Opening spaces with no dine-in options reduces space needs, slashing rent expenses as well as overall operational costs. Grocery stores have also adapted to the increase in online ordering, creating more curbside pickup locations.