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2021 Q3 Retail Report

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Encouraging Statistics and an Optimistic Outlook Offer Hope for a Resilient Market

Despite the narrative that traditional brick-and-mortar stores are suffering, low retail vacancy rates are prevalent across the greater Pittsburgh region. Despite ending the first half of 2021 at a healthy 5.0%, vacancy decreased by an additional basis point to 4.9% in Q3.

While businesses pivoted their operating models to accommodate omnichannel and online sales, many industries remained successful through the pandemic. Discount retailers, such as Dollar General, found the economic downturn to be fortuitous. Big box retailers continue to scour the market for space. In particular, Menard’s and BJ’s Wholesale are making their presence known and are evaluating regional sites. An underserved car wash market has brought interest from outside investors and several operators are exploring their options for new locations. Also, as a result of the fallout caused by closures the restaurant and entertainment industries are trying to meet pent up consumer demand. Two bowling and arcade concepts are currently in the works in the Greater Downtown submarket. At the Box Office at Southside Works, Pins Mechanical Co. recently announced their lease of approximately 30,000 SF. Also, Shorty’s Pins and Pints will be occupying 10,000 SF at People’s Plaza on the North Shore. Restaurants, particularly fast casual chains, Chipotle and Starbucks, are searching for multiple new locations.

Activity in the CBD, while still lagging, has seen an uptick in momentum. Through the third quarter, the CBD vacancy rate declined from 22.3% to 22.0%. Retailers are regaining confidence and expect downtown employers, the majority of which are office workers, to migrate back to the workplace. As evidence, Burlington signed a new lease and will be relocating to approximately 50,000 SF in the former Kaufmann’s department store on Smithfield Street, which signifies a recommitment to the CBD. They expect to be open in their new location in early 2022.

Retail medical is a fast-growing subset of the market. Colliers represented the seller of a 64,000 SF big box facility, formerly known as Main Event in the Parkway West submarket, which was purchased by a developer. Allegheny Health Network (AHN) has executed a lease for the property, which will be used as an outpatient care center. Both UPMC and AHN have recently developed large suburban medical facilities and are rumored to be in discussions with various properties throughout the region.

Many retailers in urban submarkets are reliant upon the student population of local universities. Now that the school year has commenced and classes are in session, these businesses are eager to recoup and prosper off an expanded population. The East End submarket, where many students reside, saw a decline in vacancy, going from 4.4% to 4.0%. Oakland, which is the home to several colleges, felt an increase in vacancy. However, last quarter’s vacancy rate was a remarkably low 2.5%, so an increase to 3.0% may be a more natural rightsizing of the market. Going forward, Oakland and the East End should tighten as classes are expected to remain in-person. This is also true for the CBD and Greater Downtown, which are both poplar submarkets for the college demographic.

While the outlook is promising, the retail industry still faces headwinds. Unemployment, particularly in the sectors of leisure and hospitality (9.1%), and wholesale and retail trade (6.1%) remained elevated at the end of August. Retailers are having an extremely difficult time filling vacancies due to a myriad of factors and "The Great Resignation" could have a dire impact on retail growth for the near term. Additionally, a choked supply chain still weighs upon many business owners. Not only is it difficult to ship and receive merchandise, but the process of getting building materials to construct space is delayed and costly.

In the remaining months of 2021, vacancy is expected to continue trending downward as more consumers regain a sense of confidence. Pent up demand will drive the public to patronize dining and entertainment facilities once again. The employment shortage may begin to loosen as students return to school, jobless benefits are reduced and the workforce returns to commercial hubs. Consumerism has been tested over the past year-and-a-half, but the public continues to respond with resiliency and confidence.

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2021 Q3 Retail Report

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