Despite longstanding concerns of a softening economy and eventual pullback in consumer spending, the U.S. retail market has remained resilient through the first three quarters of the year thanks to steady demand from diverse sectors, a significant pullback in store closures, and minimal new supply. Core retail sales grew by 2.2% year-over-year at the end of the third quarter of 2023, and while the numbers have softened since the start of this year and are much weaker than last year, they remain on par with the long-term average growth rate. However, unlike pre-pandemic years, much of the growth is being driven by inflation.
The national retail vacancy rate dropped ten basis points during the third quarter and stands at 4.1%. A significant slowdown in move-outs contributed to continued demand growth across the U.S. retail sector, which has now recorded 11 consecutive quarters of positive net absorption. The retail market experienced 11.7 million square feet of net absorption in the third quarter. Propelled by record spending on restaurant sales, retail tenants in the food and beverage sector accounted for nearly 20% of all leasing activity over the past year.
Retail space under construction stands at 60.2 million square feet, with 7.9 million square feet of new retail space delivered in the third quarter. New construction has primarily focused on build-to-suits, grocery-anchored centers, and smaller retail spaces in large mixed-use projects. With the amount of available space hovering at such low levels, many tenants need help finding space in target locations, especially those looking for mid-sized boxes and out parcels. As a result, this has contributed to a mild pullback in leasing activity.
Average retail asking rents rose to $24.47 per square foot in the third quarter, an increase of 1.03%. Retail rent growth is forecast to continue to decelerate in the coming quarters, in alignment with a macroeconomic outlook calling for a pullback in consumption. Significant variation in rental performance will continue, as fast-growing metros in the Southern and Western regions are expected to outperform other areas heading into the fourth quarter.
Download the U.S. Retail Market Statistics infographic here: 3Q23RetailStats