Retail Vacancies Decline In Q1.2016

The U.S. economy sputtered during the first quarter of 2016, as global economic activity throttled back and companies found financial markets’ volatility unsettling. Based on the first estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 0.5 percent. The figure is in line with last year’s first quarter reading of 0.6 percent.

Consumer spending was soft, rising at an annual rate of 1.9 percent in the first quarter, with most of the gain driven by services. Retail sales, which were weak during the winter holiday season, posted further slowdown. Spending on goods was virtually flat, given the 0.1 percent increase. Spending on durable goods—cars, furnishing, appliances and recreational goods—declined 1.6 percent. Consumers spent more on food and gasoline during the quarter, lifting nondurable goods consumption 1.0 percent. Consumer spending on services rose 2.7 percent on an annual basis, with transportation, recreation, healthcare, as well as lodging and restaurants driving expenditures.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. The unemployment rate averaged 4.9 percent in the first quarter 2016. At the end of December there were 7.9 million unemployed Americans, while an additional 6.0 million were employed part-time for economic reasons.  The average duration of unemployment declined from 31 weeks in the first quarter of 2015 to 29 weeks in the first quarter of this year.


Consumer confidence, as measured by The Conference Board, was unchanged at 96.0 in the first quarter of 2015, compared with the prior quarter. Separately, the Consumer sentiment index compiled by the University of Michigan moved up slightly in the first quarter of the year to 91.6, compared with the 91.3 value from the fourth quarter. Both remain lower on a year-over-year basis.

The retail sector is tracking demographic changes and affluent buyers and growing markets. Demand for retail properties increased in tandem with rising employment and confidence. Retain net absorption totaled 18.6 million square feet in the first quarter of 2016, a 20.8 percent increase from a year ago, according to JLL. Retail development activity remained modest, driving rent growth. Rents for retail properties rose 1.5 percent during the quarter. Vacancy rates for retail buildings declined 40 basis points, to 5.6 percent, based on JLL data.


Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter.

NAR members’ average gross lease volume for the quarter was $473,000, 36.4 percent lower than the previous period. New construction picked up, posting a 5.3 percent gain from the fourth quarter of 2015, compared with 3.7 percent in the prior quarter.  Even with soft retail sales, retail vacancies declined 122 basis points, to 12.5 percent during the quarter.

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To access the Commercial Real Estate Outlook: 2016.Q2 report visit

George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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