The transformation of the retail market continues
The restructuring of the U.S. retail sector now underway shows no sign of abating as national chains like Toys R Us
and Babies R Us follow Macy’s, Sears, JC Penney and other major retailers in closing stores across the country.
These closures have dumped significant space on the retail real estate market across the nation.
Some see the growth in e-commerce, which has fueled this shake-out of excess retailers, as the apocalypse for
the retail real estate sector. The reality is that e-commerce only accounts for 11 percent of total retail sales, a
ratio that climbs every quarter but at a decelerating rate. Still, more retailers are likely to announce further store
closings because of the simple fact
that the economy is still over-retailed.
In the U.S., there were 49 retail employees per thousand people as of the
first quarter of 2018. This ratio is down
from a high of 54 per thousand people
in 2000, but it is higher than in 2010,
when it was 46. Recent data shows that
after 2010, the ratio reversed course
and began to climb higher, until 2016,
when it started to decline again.
The chart on this page shows that
trend line in blue, but it also includes
a trend line in red that subtracts out
e-commerce employment, which
accounts for 3 percent of total retail
employment. E-commerce employment, however, has contributed more
than 10 percent of total retail job growth
since 2010. In short, we expect the red
line on the chart (retail employment
minus e-commerce) to decline at a
steady rate over the next few years.
What metros have seen, or will see, the biggest impact from the retail shake-out? It is likely that metros that are
over-retailed — with a higher than average ratio of retail employees per thousand people — will suffer more
from store closures than those that have a lower retail-employment ratio.
Using Reis retail-property data, along with federal data, to determine retail employment per thousand people,
we were able to measure retail saturation in each market and its impact on retail real estate occupancy growth.
Not surprisingly, some of the most heavily retailed metros are those with high levels of tourism, including the
Florida cities of Orlando, Fort Lauderdale, Palm Beach and Jacksonville. These metros have actually seen healthy
retail-property occupancy growth of 1.4 percent or higher since 2016.
Other metros with significant retail employment per thousand residents, however, are not regarded for their
tourism or income levels. These metros also saw the biggest declines in retail-space occupancy over the last
eight quarters. They include Lexington, Kentucky; Omaha, Nebraska; and Norfolk/Hampton Roads, Virginia —
all of which have seen occupancy declines of 0.7 percent or more in two years.
Metros with a lower ratio of retail employment per thousand residents include a number of strong retail-property
markets, such as Boston and the California cities of San Bernardino-Riverside, Oakland and Los Angeles. Each of
those markets has seen retail-property occupancy growth of 0.9 percent or more.
Some metros with low retail-employment ratios, however, have still seen retail-property occupancy levels
decline or stay flat. These markets include New Haven, Connecticut; Tucson, Arizona; Chicago; and Tacoma,
Washington. This suggests that retail saturation, although an important measure, does not always predict how
strong the retail property sector is.
The good news is that most metros at this time are not seeing increases in the ratio of retail employment per
thousand people. In fact, most metros have seen the ratio decline over the last two years, which should help to
abate the risk of retail saturation in those markets. We will revisit this study in a year or two as we expect to see
further declines in retail employment per thousand people across most metros, in particular those not buoyed
by tourism. n
By Victor Calanog and Barbara Byrne Denham
Barbara Byrne Denham is an economist in the research and economics
department at Reis Inc. She previously
served as chief economist at Eastern
Consolidated and is a Ph. D. candidate
at New York University, where she
has studied economics, monetary
theory and game theory. Reach her
Victor Calanog is chief economist
and senior vice president for research
at Reis Inc. ( www.reis.com). He writes
a monthly column on property types
for Scotsman Guide. Calanog and his
team of economists are responsible
for data models, forecasting, valuation
and portfolio services for clients in
commercial real estate. Reach him
Source: U.S. Census Bureau, U. S. Bureau of Labor Statistics and Reis Inc.
US retail employment per 1,000 people
US retail employment (excluding e-commerce) per 1,000 people
U.S. Retail Employment