Retail sales ended the year on a solid note, as core retail sales, excluding gasoline, food service, and auto vehicle purchases, increased by 3.3% at the end of 2023. The holiday period saw consumers actively engaging in retail experiences, driven by a desire for enjoyment. This prompted some to temporarily ease financial constraints, leading to a notable uptick in credit utilization for purchases. According to GlobalData analysis, credit card balances increased by $55.6 billion in December compared to the previous year’s period. Additionally, Buy Now Pay Later emerged as a more prominent and widely adopted payment method this holiday season, with usage up 17% from last year.
The national retail vacancy rate dropped ten basis points during the fourth quarter, reaching 4%. Leasing activity continues to be impacted as minimal space availability holds back leasing on the supply side, and concerns over rising operating costs and moderating sales gains affect demand. Average retail asking rents rose to $24.69 per square foot in the fourth quarter, an increase of 0.9%. Landlords are reporting more substantial pricing power as the supply of available space has dwindled and are holding firm on rents.
Retailers signed over 16,500 individual leases spanning 56.4 million square feet. Retailers such as Dollar General, Crunch Fitness, Dollar Tree, H-E-B, Target, Macy’s, and Five Below drove leasing activity in the fourth quarter of 2023. As a result, the retail market experienced 17.6 million square feet of net absorption in the fourth quarter. In 2023, retail demand surged, outpacing retail supply by an impressive 12.6 million square feet. Phoenix, San Antonio, Austin, Fort Lauderdale, and Kansas City led demand growth over the past year as retail continues to follow rooftop growth.
Retail space under construction stands at 55.2 million square feet, with 9.2 million square feet of new retail space delivered in the fourth quarter. Limited development over the last several years has driven the restoration of the fundamental balance within the retail industry.
Overall, 2023 was a good year for retail, and the much-talked-about recession never materialized. Retail fundamentals are expected to stay well-balanced in 2024, as the limited availability and decrease in new supply will help to counteract a slight dip in demand formation.
Download the U.S. Retail Market Statistics infographic here: 4Q23 Retail Stats