Soft Consumer Spending Leads to Flat Retail Demand in Q1.2017

In the wake of a moderate 2016, the rate of economic growth remained tepid during the first quarter of 2017, with a 1.2 percent annual increase, based on the second estimate of real gross domestic product (GDP) from the Bureau of Economic Analysis (BEA). While the second estimate was an improvement over the initial 0.7 percent, it was far below the average 3.4 percent typical of first-quarter GDP growth over the 1950-16 period.

The first quarter moderation in economic activity came mostly from a pullback in consumer spending, and to a smaller extent, a decline in government expenditures. Consumer spending—the main component of GDP—remained positive, though with a scant 0.6 percent annual gain during the quarter. With the winter months milder than expected, consumers cut back on auto purchases to the tune of 13.9 percent, bought fewer clothes and shoes, as well as less gasoline, oil and energy goods. The silver lining during the quarter were higher purchases of furniture and household appliances, which rose 2.9 percent, recreational goods and vehicles (up 13.2%), and grocery store items (up 3.1%).

Disposable personal income—adjusted for inflation—increased 1.0 percent in the first quarter, according to the BEA. The personal saving rate was 5.7 percent in the first quarter, higher from the previous quarter’s 5.5 percent.


Payroll employment advanced in the first quarter of 2017, with a net gain of 527,000 new jobs, according to the Bureau of Labor Statistics (BLS). Private service-providing industries continued as the growth engine during the quarter, with 341,000 net new jobs. As a direct response to the hundreds of department store closures announced during the first quarter by retail companies, such as Macy’s, Kohl’s, JC Penney and Sears, retail trade employment declined by 20,800 jobs.

With weak consumer spending in the first quarter, demand for retail spaces was unchanged. Retail net absorption totaled 14.5 million square feet during the quarter, according to CBRE. Retail construction activity picked up speed, with completions advancing 12.4 percent year-over-year, totaling 10.5 million square feet. Availability declined 30 basis points on a yearly basis, reaching 7.0 percent. Retail rents continued accelerating—in the wake of 13 consecutive quarters of growth—and averaged $16.97 per square foot, a 6.0 percent increase from the first quarter of 2016.


Commercial fundamentals in small cap commercial markets remained positive during the first quarter of 2017, but the pace of growth moderated. Leasing volume advanced 2.3 percent from the prior quarter. New construction increased by 2.3 percent from the prior quarter, the slowest pace since the first quarter of 2015. Leasing rates rose by 3.8 percent, as concessions declined 11.1 percent.

Vacancy rates continued declining in the first quarter of this year. Lease terms remained steady, with 36-month and 60-month leases capturing 61.0 percent of the market. One-year and two-year leases made up 23.0 percent of total.

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To access the Commercial Real Estate Outlook: 2017.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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