Consumers are Spending More, but Retail Space per Capita is Declining

Good morning,

Consumers are spending more, but retail space per capita is declining; Providence, RI leads nation in rent growth; NYC foreclosure update; and W.P. Carey exits office market entirely through spin-off and sales. Let’s delve into today’s topics.

📈 Market Update

🛍️ Consumers are Spending More, but Retail Space per Capita is Declining

While US retail spending has grown substantially over the past 15 years, fueled recently by pandemic stimulus, the amount of retail space per capita has declined 3.9% over that time. This increased efficiency is largely a result of population growth in cities like Austin and Nashville combined with a slowdown in retail construction. Going forward, tight financing conditions are expected to restrain new retail supply, likely leading to further declines in retail space per capita even as consumer spending rises.

🏘️ Providence, RI leads Nation in Rent Growth

Multifamily rents in Providence, Rhode Island have risen nearly 6% over the past year, more than triple the national average, as extremely limited vacancies allow landlords to push rents higher. With a vacancy rate of just 3.4%, second-lowest in the US, new apartment construction in Providence has stalled due to high costs, preventing much-needed supply growth. This will likely cause already fast-rising rents to climb further amid low renter mobility.

🌇 NYC Foreclosure Update

WeWork's deteriorating financials are negatively impacting New York City landlords, with Walter & Samuels facing foreclosure after WeWork defaulted at a Garment District building and suing WeWork after defaults at a Chelsea property. Meanwhile, a new office building next to Penn Station sold for just 25% of its construction cost in a foreclosure auction, signaling further trouble ahead as occupancy languishes around 40% amid remote work trends.

🏢 W.P. Carey Exits Office Market Entirely Through Spin-Off and Sales

W.P. Carey, a major global commercial property investor, is exiting the office market entirely and rapidly through the spin-off of 59 office properties into a new REIT that will sell its assets by end of 2023. This accelerated sell-off amid low office demand signals W.P. Carey's bet that a recovery is not imminent. The move is aimed at improving earnings quality and its credit profile as it focuses on industrial, retail and other property types.

✍️ Further Reading

• Watching the Real-Estate Bust From the Streets of San Francisco (WSJ)

• Real Estate Developer Convicted in $1.3 Billion Tax Case After Juror Removed (BBG)

• Where the Loan Modifications Are Happening (GS)

• Apartment Renters are Absorbing the High Number of Units Coming to Market (GS)

📊 Chart of The Day