Economic Jingle Bells: Consumers Ring In Holiday Cheer With Surging Sales Despite Inflation Worries

Consumers aren't letting high interest rates and inflation concerns dampen their holiday spirit.

Despite economic challenges, month-over-month sales rose for the sixth straight month — up 0.7%  in September from the previous month — heading into the holiday season, according to JLL's third-quarter U.S. Retail Outlook.

"While most of this growth can be attributed to inflation, categories that showed particular strength included auto dealerships, F&B [food and beverage] places and miscellaneous retailers," the report states.

But rather than spend their money on material goods, consumers are choosing to splurge on experiences. Shoppers plan to spend $958 per person this holiday season — 22.8% of which will be used for holiday entertainment and experiences.

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More than 90% of those JLL surveyed plan to participate in at least one holiday-related experience.

 What Consumers Plan To Do This Holiday Season

Dine out at a restaurant	65.5%
Go to the movies	43.7%
Attend a live performance	27.5%
Travel on vacation and stay at a hotel	23.5%
Visit a kids' attraction	20.6%
Visit an entertainment venue	18%
Take kids to see Santa	14.7%
Don't plan to do any	9.8%

Source: JLL Holiday Shopping Survey 2023

So, what does that mean for retail real estate?

The sector is experiencing a shortage of available space because of limited new deliveries and 145 million square feet of space demolished in the last five years. Availability is nearly 200 basis points below its historical average of 6.8%, according to the report.

Retail Fundamental Statistics Q3 2023

Fundamentals	General retail	Malls	Power centers	Neighborhood and community	Strip centers	Total retail
Inventory	6.5 billion	910.5 million	799.8 million	3 billion	706.5 million	12 billion
Vacancy	2.5%	9.1%	4.3%	6%	4.7%	4.2%
Net absorption	8.4 million	(434,694)	235,521	1.5 million	518,412	10.5 million
Net deliveries	5.4 million	194,870	444,984	1 million	349,486	7.4 million
Under construction	42.8 million	3.3 million	1.8 million	8 million	2.9 million	60 million
Market rent	$23.62	$32.94	$26.21	$23.60	$22.40	$24.48

Source: JLL

A lack of desirable space in strong markets is pushing rents higher. Although there is demand for the limited space available, construction activity is still low because of soaring costs. Deliveries of retail space are near record lows, falling 30.4% from the previous quarter.

Freestanding retail space is more in demand than it has been in the past, with absorption doubling from the second quarter. Meanwhile, power center absorption fell nearly nine percentage points, and smaller shopping center absorption was less than a third of what it was in the second quarter.

Malls are the hardest hit, with negative net absorption of 0.4 million square feet, although Sun Belt markets are seeing above-average year-over-year mall rent growth. Mall vacancy is at the highest level it's been for more than 15 years, and many traditional tenants are relocating their stores to open-air neighborhoods and community centers with higher foot traffic.

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