August 15, 2013
Retail sales advanced at a tepid pace in July as consumers maintained a cautiously optimistic stance in the face of mixed economic news. Limited risk tolerance and fragile psyches remain a hallmark of the recession, reiterating that a transition to a consumer-led recovery may still be slow in forming. The positively performing but still-soft retail market will likely weigh on the Fed’s timing as they consider decreasing their infusions into the capital markets. Speculation that tapering will soon begin has already pressured Treasury rates, increasing the 10-year by more than 100 basis points over the last two months. These trends temporarily unnerved the mortgage and auto markets, but rising home values and the strengthening employment market will offset these forces as the “wealth effect” gathers momentum and begins lifting consumption through the remainder of this year.
Total retail sales advanced 0.2 percent in July as auto dealers and housing-related retailers dragged on the top-line figure. Core retail sales, which excludes autos and gas, posted a more impressive 0.4 percent gain, the largest monthly increase since April. Recently overshadowed by motor vehicles, non-store retailers, and housing-related stores, several other sectors contributed to growth last month. Sporting goods and hobby stores posted a 1 percent advance, while back-to-school shopping supported a 0.9 percent gain for clothing and accessories stores. Restaurants and bars realized a 0.6 percent rise in retail sales, snapping a two-month slide.
The housing market’s importance in buoying retail sales was highlighted again in July. Home sales in June fell, which led to a decline in every major housing-related retailer segment last month. Furniture and home furnishing stores faced a 1.4 percent plunge, while building materials and electronics and appliances stores lost 0.4 and 0.1 percent, respectively.
Impact on Commercial Real Estate
Since the recessionary trough, core retail sales have jumped by nearly 20 percent, and are now 13 percent above their pre-recession peak. Despite this positive momentum, space demand for retail locations has only inched up 2.4 percent, reflecting some continued weakness by local retailers relative to their national and regional peers as well as the significant supply overhang generated during the housing boom. Retailers will continue to absorb dark space this year, causing vacancies to decrease 50 basis points to 7.9 percent.
The industrial property sector recorded considerable improvement over the past three years, mostly supported by a resurgent manufacturing sector and non-store retail sales, led by Internet retailers. As the economic recovery transitions to consumer and housing-based spending, warehouses should benefit from corporate inventory restocking. As a result, vacancy in the industrial segment will dip to 8.4 percent, the lowest level since the beginning of the last recession.
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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.