Eight key markets are poised to have the most momentum in retail rent growth this year, according to a new report from JLL’s capital markets retail team.
Nashville tops the list with nearly 63% growth in retail rental rates since 2011, followed by South Florida at 47.1% and Austin and Tampa, each at 39%. Other top metros include Denver with 37% and Charlotte, Dallas-Fort Worth and Raleigh-Durham all clocking in at 30% rental growth.
JLL experts say these so-called “momentum markets” have posted rental growth since 2011 that’s well above the national 10-year rent growth of 27.7%, as well as population growth above the 10-year national average of 7.4%. Consumer behavior also plays a huge part: in recent remarks, NRF President and CEO Matthew Shay predicted retail sales will hit $4.86 trillion or more this year, and said NRF expects durable growth notwithstanding inflation risks and geopolitical threats. NRF predicts retail sales to tick up by between 6 and 8% in 2022.
That will drive rents, and where rent goes, so do investors. Institutional sources of capital have been paying close attention to growth in these cities. Deliveries have increased each year since 2017 in the eight momentum markets JLL identified except in 2020, and occupancy has ticked up to 95.5% as of the end of 2021.
“When we look at the traditional underwriting of retail, we look at 10-year cash flows and aim to be able to predict about 2 to 3% annual rent increases,” said Senior Managing Director Danny Finkle, JLL’s retail co-leader in capital markets. “These markets are already outperforming right now, and their market dynamics suggest they will continue to do so.”
The outlook has also remained positive for the sector this year as fewer brands have announced store closure plans than in prior years. Openings outpaced closings for the first time this year after three consecutive years of net closures, with just 47 closures announced over the next two years versus 720 openings.
“Total space demanded by the store openings is almost double the space that will be vacated,” added Senior Managing Director Barry Brown, JLL’s retail co-leader in capital markets. “This provides additional stability for investors in retail assets.”
Las Vegas, Orlando, Salt Lake City and the Boise MSA are also expected to enjoy a strong 2022, JLL says in the research, noting that those cities are on the “precipice of outpaced rental growth.” The cities are expected to have double-digit rent growth between 12 and 25% before 2025, fueled by population booms and an increased focus of investor capital.