January 2024
By Todd Alexander, Executive Vice President
According to a report by the Wall Street Journal, the national vacancy rate in the retail sector was 4.8% in 2023. In Central Massachusetts, the rate was slightly lower at 4.3%, as reported by CoStar Analytics. These rates were significantly below the historical averages, indicating a tight market.
Two primary factors contributed to this scenario: the higher rate of store openings compared to closures, which led to increased absorption of existing retail spaces; and a constrained inventory of new retail locations. The slow pace of new constructions, attributed to tightened lending conditions in capital markets, further exacerbated the limited supply issue.
The retail landscape in 2023 also witnessed a significant shift in tenant preferences. Indoor malls, once the epicenter of retail activity, faced a decline in foot traffic and, consequently, tenant interest. Retailers increasingly sought out off-mall alternatives that provided a mix of apparel stores, eateries, fitness centers, and entertainment options. This trend led to the continued growth of open-air lifestyle centers, which became more popular as one-stop destinations offering a variety of experiences that were traditionally found in malls or urban environments. This shift was at the expense of traditional suburban malls, especially Class-B and C malls. A notable example was Foot Locker, which closed 400 in-mall stores while opening 300 locations in shopping centers.
In the metro Boston area, open-air lifestyle centers such as The Shoppes at Blackstone Valley in Millbury, Lakeway Commons in Shrewsbury, Bay State Commons in Westborough, and Derby Street Shops in Hingham, have seen significant growth. These centers feature a mix of healthcare offices, supermarkets, and wealth management offices as anchor tenants, reflecting the changing dynamics of retail real estate.
In the financial services sector, Fidelity continued to expand and improve its network of 200 Investor Centers in the U.S and worldwide. Locally, in Shrewsbury, Fidelity will be relocating to an 8400 SF build-to-suit building at Shrewsbury Crossing which is currently under construction.
The banking sector saw a net increase in branches in Massachusetts, with a total of 120 new branches opening. Chase led this expansion with 32 new branches in Massachusetts, marking a significant investment in the region. In Worcester, Cornerstone Bank acquired the former Santander branch at Tatnuck Square and announced the opening of a new built-to-suit branch in Shrewsbury in early 2024.
These developments indicate a strategic approach by financial institutions to align their physical presence with market demands and consumer preferences. With suburban residents spending less time commuting downtown, suburban retail – including banks and financial service firms – are seeing a strong uptick.
One of the most significant trends emerging from the pandemic has been the increased consumer spending on experiences. This shift was evident in the retail commercial real estate sector, with a notable growth in sectors such as performing arts, amusement parks, arcades, and spectator sports. All these segments saw double-digit growth in 2023.
This trend also manifested in the popularity of indoor activities like golf simulators and pickleball. For instance, indoor pickleball facilities became a hot aspect of the retail sector, with dedicated facilities opening in locations like West Boylston and the Natick Mall.
As we move into 2024, the retail sector faces a mixed economic landscape. On one hand, there are concerns such as rising consumer credit card debt, increasing delinquency rates, especially in auto and student loans, and a slowdown in home sales, which impact associated big-ticket purchases. On the other hand, there are positive indicators as well. Wages have grown more than inflation, and there remains a significant reservoir of savings accumulated during the pandemic.
The expectation for 2024 is that the more robust retailers, those that offer good service and decent quality, will continue to absorb and displace weaker competitors. This suggests that the demand for retail rental space will be maintained in 2024, but the growth will be driven by consolidation rather than an overall expansion of the market.
The retail commercial real estate outlook for 2024 presents a complex yet optimistic scenario. The sector is likely to witness continued evolution, with shifts in consumer preferences, changing retail dynamics, and the ongoing importance of experience-based retail shaping the landscape. While there are economic challenges to navigate, opportunities for growth and adaptation remain abundant for retailers and real estate developers alike.
Worcester Business Journal
The lease by Route 12 Pickle for the 30,000-square-foot anchor space makes Wachusett Plaza 100% leased, according to Kelleher & Sadowsky V.P. Thomas Bodden, the result of a four-year push to fill the plaza which was decimated by a loss of tenants in 2019.