LOOKING AHEAD CONTINUED

expected. Both consumer spending and labor market performance have consistently defied forecasts and outperformed for more than half a year now.

However, after two years of high inflation, consumer spending has finally been coming back to earth in recent months. We anticipate that it will begin to show negative annual growth sometime during the final half of 2023 for the first time since the early months of the pandemic. While we believe this will be a shortlived phenomenon, it will likely result in some retailers temporarily slowing down or putting the brakes on physical expansion plans.

Meanwhile, though a solid 209,000 jobs were created in June—this was the lowest level of employment growth the US has recorded since December 2020. While a “soft landing” scenario is still possible, most economists put the odds at greater than 50/50 that a recession is in the not-too-distant future (although most concur that if one happens, it will likely be brief and shallow).

The reality is there is a considerable lag time that occurs before the impact of interest rate hikes fully hits the economy. The Federal Reserve’s current campaign to tame inflation is not just the most aggressive we have seen in 40 years; it is also the fastest—with the effective funds rate having been raised a full five percentage points in one year. We have not felt the full impacts yet— which raises the risk that the Fed will overdo it (assuming they return to rate hikes again) or that they may already have.

Meanwhile, the Bed, Bath & Beyond (BB&B) saga has ended with bankruptcy and looming liquidation of both of the company’s banners (BB&B and Buybuy Baby). Buybuy Baby initially had some buyer interest, but a deal never materialized. Both companies have sold their intellectual property rights off—BB&B was purchased by Overstock.com which will be rebranding itself online over the final half of the year—but all remaining stores are being shuttered. Two had already closed as this report went to press, leaving four stores between the two concepts that will go dark in Q3 adding approximately 120,000 SF of vacant box space to market.

2023

The good news is that our brokers report that this space already had multiple suitors on standby. There are multiple off-price apparel users in expansion mode already in search of quality sights in that size range. However, macroeconomic conditions could potentially hold the potential to slow the process over the next few months. Looking forward, we anticipate modest increases in vacancy, and a possible slowing of deal velocity. But we do not anticipate additional outsized space givebacks—the likes of which were increasingly common in the runup to the pandemic. Look for rental rates to hold firm.

Criteria based on: Retail in a Shopping Center. Includes Existing, Under Construction, Proposed, Final Planning