US Retail Rents Lead the Asset Class’ Recovery Globally

Retail rents are now a stunning 15% more than they were before the outbreak, and in some parts of Texas, they have increased by as much as 90%.

According to recent research from leading commercial real estate firms, retail rents are currently 15% higher than pre-pandemic levels in markets all across the Americas.

The data provided shows that rents in key retail locations around the world averaged a 13% decline from before the pandemic to their lowest point, but have since recovered to lie 6% below pre-pandemic levels. In areas like Asia-Pacific, where rents decreased by an average of 17% during the epidemic (and by 30% in localities like the Luohu district of Shenzhen, China, over the past year), rent growth has been more shaky.

But rents in the US, which were the main driver of retail rent rises in the Americas, are now significantly higher than they were before the pandemic. For instance, rents in Houston’s River Oaks neighborhood increased by a startling 90% since last year.

Global retail markets have recovered almost half of their losses overall since the pandemic’s peak, and the average rent is currently 6% below pre-COVID levels. But as the report acknowledges, the pace of recovery has varied. It can be argued that it has been strongest in the United States, partly as a result of fiscal policies that have been supportive.  Other contributing factors are domestic migration patterns that have led to strong population growth in markets like Houston and Austin—and as a result, an influx of purchasing power into those markets.

Even though a doubling of rents in those Texas cities is both impressive and somewhat surprising, there are also clear drivers, analysts write, and the fact that these markets are at the less expensive end of the U.S. cost spectrum also had influence on the percentage growth figure, coming off a lower base.

According to the analysis, rents in high-end retail corridors in the US are now 25% higher than they were before COVID. And although the firm’s list of the most expensive retail markets still places New York City’s Upper Fifth Avenue at the top, Rodeo Drive in Los Angeles comes in at number two, followed by San Francisco’s Union Square, Las Vegas Boulevard in Sin City, Chicago’s North Michigan Avenue, and Boston’s Newbury Street.

In the future, consumer confidence will be crucial. As of midyear 2022, total retail sales were up 33% in the US over pre-pandemic levels, but consumers are apprehensive about the next 12 months due to the uncertainty of inflation and the strain on household spending due to increasing mortgage and rent, energy, and food costs, the research states. We anticipate and hope that consumer confidence will increase if there is some evidence that inflation is steady and declining. There is some preliminary evidence of this sentiment, however flimsy, as we observe several markets’ confidence bottoming out and in some cases even starting to recover.

Our Orange County commercial real estate brokers will help you every step of the way in finding the right commercial investment property, contact us for details.



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