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CBRE EA’s previous retail Chart of the Week explored the effects of heightened demand for retail space amid limited retail development. This analysis raised questions about whether retail space had been overbuilt in previous cycles and is just now reaching supply-demand equilibrium. Data limitations prevent us from analyzing pre-2000 market dynamics. However, we know that per-capita retail space peaked during the 2008 Global Financial Crisis (GFC), which magnified the credit crunch’s impact on shopping center performance.

In the GFC’s aftermath, the rise of e-commerce and the limited availability of consumer credit forced the retail real estate market to right-size. Per-capita retail space declined by 0.3% per annum from 2011 to 2019, while nominal sales per square foot increased by 3% annually.

The pandemic accelerated this trend as households spent more closer to their homes. What’s more, some growing business-to-consumer brands leased retail space to increase customer interaction, facilitate omnichannel selling and satisfy Gen Z's desire for in-person shopping experiences.

Looking forward, retail market fundamentals are tight, and the development pipeline is thin. The upshot is that higher sales at shopping centers should lead to future nominal rent growth (expected to average just less than 3% annually through 2027) and drive attractive returns for patient investors.