Retail Rent Growth Enters 2017 on Upward Swing

Bobby and Lindsey
Published on March 15, 2017

Retail Rent Growth Enters 2017 on Upward Swing

Economic activity continued on an upward trend in the last quarter of 2016, but at a slower pace, as the first estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis documented. Preliminary figures indicated that GDP rose at an annual rate of 1.9 percent, on par with the average 1.9 percent typical of fourth-quarter GDP growth over the 2000-15 period. The slower quarterly economic performance closed the book on 2016 with an annual GDP growth rate of 1.6 percent.

Consumer spending—the main driver of GDP—continued on an upward swing for the 28th consecutive quarter. Personal consumption rose at an annual rate of 2.5 percent in the fourth quarter. Benefitting from the traditional holiday season, the fourth quarter experienced solid gains in durable goods spending, especially cars and light trucks (up 11.8 percent), as well as recreational goods and vehicles (up 16.2 percent). Consumers also spent more on furniture and durable household appliances (up 4.0 percent). Nondurable goods spending increased at a comparable 2.3 percent during the quarter, with more consumer dollars flowing toward grocery store purchases. Spending on services rose 1.3 percent on an annual basis, with transportation, recreation and financial services leading the spending gains.

Disposable personal income—adjusted for inflation—rose 1.5 percent in the fourth quarter, according to the Bureau of Economic Analysis. The personal saving rate was 5.6 percent in the fourth quarter, slightly lower from the previous quarter.

The pace of employment growth remained positive, but softened slightly in the fourth quarter. Payroll employment advanced by 495,000 net new jobs during the fourth quarter, closing 2016 with a net total of 2.2 million new employees, according to the Bureau of Labor Statistics. Private service-providing industries continued as the growth engine during the quarter, with 455,000 net new jobs. With the retail shopping season in full swing, retail trade employment gained 23,500 net new positions, as the wholesale trade sector added 13,800 net new employees to the quarterly payrolls.


Following gains in employment, consumer confidence picked up. The Conference Board’s Consumer Confidence index advanced 12.3 percent year-over-year, to 107.8, the highest value since the first quarter of 2007. The value for December 2016 was 113.3, indicating growing optimism about the outlook. Separately, the Consumer sentiment index compiled by the University of Michigan also advanced in the fourth quarter of the year to 93.1, compared with the 91.3 value from the fourth quarter of 2015.

Going into the last quarter of 2016, demand for retail properties remained steady, as employment growth and rising wages boosted consumer spending. Retail net absorption totaled 12.5 million square feet during the quarter, bringing to yearly total to 74.8 million square feet, according to CBRE. Retail construction activity continued at subdued levels, with 12.8 million square feet of new completions. Availability moved sideways during the last quarter of 2016, staying at 7.1 percent. Retail rents—up for 12 consecutive quarters—advanced 4.0 percent year-over-year, to $16.59 per square foot.


Commercial fundamentals in smaller markets strengthened during the fourth quarter of 2016. Leasing volume advanced 2.5 percent from the prior quarter, as leasing rates rose by 3.1 percent. NAR members’ average gross lease volume for the quarter was $953,700. New construction echoed the broader economic landscape, posting a 6.6 percent gain from the third quarter of 2016.

To access the Commercial Real Estate Outlook: 2017.Q1 report visit


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