Episode summary
Retail Real Estate Outperforms as Vacancy Rate Sits Below 5%
Bloomberg Surveillance
· · Guests: Hessam Nadji
Summary
Hessam Nadji says retail real estate has emerged from a long reinvention cycle with much tighter supply and stronger use cases than before, helped by fitness, entertainment, food, and destination shopping. He argues the sector is benefiting from solid wages, high consumer confidence, and spending by higher-income households, even as uncertainty around interest rates, tariffs, and weakening consumer confidence has made retailers more cautious about openings and expansion.
Regional performance is uneven. Nadji says suburban retail has been doing much better, while urban retail is still recovering as office return-to-work trends improve foot traffic but have not fully repaired street-level vacancy. He points to New York as a market that is adding 70,000 to 80,000 jobs a year, yet still has storefront struggles in some prime locations.
On the capital side, Nadji says commercial real estate is helped by price corrections of 15% to 20% since the 2020 peak and by the return of lending from banks and credit unions. He says the main near-term headwind is policy and data uncertainty around the government shutdown, tariffs, and the Fed, while retail and broader commercial real estate fundamentals remain strong.
Key takeaways
- Nadji says retail is supported by strong fundamentals, with demand driven by fitness, entertainment, food, and destination shopping.
- He says suburban retail is outperforming urban retail, where recovery is slower despite improving return-to-office trends.
- He says commercial real estate prices are down 15% to 20% from the 2020 peak, which is helping transaction activity.
- Nadji says financing has come back because banks and credit unions are lending again, especially in the sub-$10 million market.
- He says office is often overstated as a systemic risk, with U.S. banks having less than 5% exposure and suburban office vacancies around 11% versus 30% in older urban assets.
Notable quotes
“Retail has a short term and a long term picture that we have to talk about in order to really express the current state of the market”
“It's all pretty much driven by fitness, entertainment, food and destination shopping”
“Suburban retail, on the other hand, has been doing much, much better”
“Since 2020 to peak March of that year, prices have gone down on average 15 to 20% across the entire industry”
“we do business in six. Categories of commercial real estate, self-storage, manufactured homes, land, of course, medical office”
How the episode opens
Retail has a short term and a long term picture that we have to talk about in order to really express the current state of the market. The long term picture comes from pain. 20 years of reinvention, of retail, ecommerce, killing, brick and mortar, and the industry stopped building any new product for the most part.
Right, and repositioned so many shopping centers and retail concepts. And we've come out of that much tighter and a reinvented way of using brick and mortar retail, which is now being very successful. It's all pretty much driven by fitness, entertainment, food and destination shopping.
Those things are moving in a very positive direction in the near term because wages have been growing and consumer confidence has been really high and high net worth. Individuals have been spending thanks to the stock market and other wealth creation mechanisms. Sales have been really, really strong.
So to very short term and long term positive factors going, some of the headwinds are the uncertainty related to interest rates, tariffs that made many retailers pause for a moment in store openings and balancing, you know, forecasting where consumer confidence may be going, which has weakened in the last few months. So it's really a battle between some of that uncertainty and very strong fundamentals. So during the break, you were talking to us about how some of the retail spaces are performing well in suburban areas.
Talk to us a bit about what it looks like regionally as we think about demand for retail space. You mentioned New York right here at the heart of the capital markets epicenter of the world. We're creating 70 to 80000 jobs a year in New York is back.
Yet there is a lot of urban retail storefronts that are still empty or struggling, that consumer habits, the, you know, tourism hit that we took earlier this year.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- retail real estate
- vacancy rates
- mortgage rates
- housing market slowdown
- investor optimism
Companies and tickers mentioned
- Marcus & Millichap
- Freddie Mac
- Redfin
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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