The retail industry is undergoing a significant transformation, responding to shifts in consumer behaviour, increasing rents, and fluctuating interest rates. Smaller retailers, particularly in the food and beverage sector, are expanding their footprint, while larger traditional retailers are downsizing. This shift has led to a growing demand for smaller, more efficient spaces. This is mentioned in Furniture World.
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During the initial three quarters of 2023, the average size of retail spaces reached a historic low of 3,200 square feet. Over this period, retail tenants leased a total of 191 million square feet, showcasing a move towards smaller lease sizes and a decline in big-box leases. Major players in the US like IKEA and Target are leveraging this trend, introducing micro-retailing through small-format stores tailored to urban consumers.
Throughout the first three quarters of the year, only 800 new leases exceeding 25,000 square feet were executed, marking a significant decrease from the previous year and the five-year average. This shift, constituting 17% of all new retail leasing activity, represents the lowest share on record, with more than 50% of leasing activity concentrated in spaces under 5,000 square feet. This trend aligns directly with changing consumer preferences, escalating rents, and increasing interest rates.
Furniture retail saw a remarkable shift in 2023, with only 21 new retail leases—a substantial drop from 44 in 2022 and the five-year average of 36 per year. This decline, indicative of evolving consumer preferences and a dynamic leasing market, resulted in a total leased square footage of 667,486, marking a 44% decrease from the preceding year. Simultaneously, the average lease size mirrored the industry trend towards smaller spaces, shrinking to 31,785 square feet. In 2024, these factors will undoubtedly continue to shape the retail property sector.
Source: furninfo.com