Marketplaces Industry Quarterly Report: Q1-2023

Marketplaces Industry Report

Q1-2023

There was a positive start to 2023 for the U.S. Marketplaces Industry. Though combined retail and food services sales growth slowed slightly during Q1-2023, the year-over-year trend was still up for the first quarter. Food services and drinking places along with health and personal care stores saw the biggest sales increases. Additionally, both the retail and food services sectors added a significant number of jobs, with retail seeing the largest quarterly gain in a year, and food services getting closer to pre-pandemic job levels. Marketplace performance continued to improve as base rents per square foot had the biggest year-over-year increase since 2000 (when tracking began) and occupancy surpassed the Q1-2022 level, aided by a jump in the mall occupancy rate. Although consumers remained cautious on inflation and the health of the broader economy, sentiment was higher than almost any point last year, with the only setback being caused by two bank failures in March. Scroll through ICSC’s Q1-2023 Report in full, or click to the individual sections using the navigation below.

Quarterly Retail and Food Services Sales

Retail and Food Services Sales* Performance and Overview**

Non-Store Retailers

Food-and-Beverage Stores

General Merchandise Stores

Food Services and Drinking Places

U.S. Dollars (Millions)

Retail and Food Service Sales

Month-to-Month Growth

January

March

Q1-2023 Overall Sales

$1.50 Trillion

+1.5% Q-o-Q

Health and Personal Care Stores

Source: U.S. Census Bureau

U.S. Employment Situation

In Q1-2023, jobs in the retail sector rose 50,800 from the previous quarter. January and February both experienced job gains over the previous month, while March was the only month in Q1 to see a decrease. February gained 48,000 jobs, the largest increase in a year. The average number of retail jobs in Q1-2023 was 68,970 below (or -0.4%) Q1-2019 but up 25,100 (or +0.2%) compared to Q1-2022. The food services sector gained 155,100 jobs in Q1-2023. The average number of food services jobs in Q1-2023 was 180,500 (or +1.5%) above Q1-2019 and 642,900 (or +5.6%) more than the same period a year ago. At the end of Q1-2023, retail employment was up 8,700 from its February 2020 level, while the food services sector was 111,900 below that pre-pandemic point. These recovery figures demonstrate resiliency in both sectors, considering retail lost nearly 2.3 million jobs in March and April 2020 and slightly more than 6 million jobs were lost in food services.

U.S. Employment (in Thousands)*

U.S. Shopping Center Performance Benchmark

* Seasonally adjusted

Source: Bureau of Labor Statistics

Retail Food Services and

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Retail

Food Services and Drinking Places

January February March

January

February

March

Source: NCREIF and ICSC Research

Consumer Engagement

Source: Surveys of Consumers, University of Michigan: Consumer Sentiment

Shares of Monthly Expenditures by Channel – Q1-2023

Shares of Total Monthly Expenditures at Physical Establishments (Open-Air + Freestanding + Malls)

Source: ICSC Research

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CONTENTS

Retail and food services sales (excluding motor vehicles, auto parts and gasoline) totaled $1.50 trillion in the first quarter of 2023. Compared to the previous quarter, Q1-2023 sales grew 1.5% and increased 7.0% over Q1-2022, slightly above the average rate of inflation (5.8%) observed throughout the quarter. The year-over-year growth rate is the lowest since Q4-2020 while the Q1-2023 growth over Q4-2022 is an improvement from the previous quarter-over-quarter growth rate. Sales started off strong in Q1-2023 with January seeing growth over the previous month and year over year. In February and March, sales declined month over month while year-over-year growth slowed, with March experiencing the lowest year-over-year growth since June 2020. Q1-2023 was strongest for food services and drinking places as well as health and personal care stores. This was the eighth straight quarter food services and drinking places grew year over year by double digits. Although electronics stores grew in Q1-2023 over Q4-2022, total quarterly sales for the category declined year over year for the fourth consecutive time.

On a rolling four-quarter basis (Q2-2022 to Q1-2023), base rent at marketplaces across the U.S. increased 6.6% over the prior comparable period, rising to the highest level since the four quarters ending Q1-2020. All regions across the U.S. saw increases, with the West and South experiencing the biggest rent gains. Q1-2023 alone saw the largest year-over-year rise (+9.8%) since tracking began in 2000 and was the sixth consecutive quarter of growth in base rent. Percentage rent also continued to climb, growing 22.0% over the past year. Net operating income extended its positive year-over-year growth streak to eight straight quarters and rose 7.0% during the last four quarters over the prior comparable period. Occupancy rates at shopping centers were 91.8% in Q1-2023, 1.3 percentage points (pp.) higher than a year ago. Malls experienced a significant improvement in occupancy, ending Q1-2023 at 87.5%, 3.0 pp. more than Q1-2022.

The share of total monthly expenditures allocated to malls declined slightly in Q1-2023 from Q4-2022, which saw a large boost in sales due to holiday season purchases but was 0.7 percentage points (pp.) above Q1-2022. Consumer allotment of dollars to open-air centers and freestanding establishments rose compared to the previous quarter but did not quite reach the same levels as the prior year. Allocation of dollars to open-air centers was down 0.5 pp. from Q1-2022 and was nearly 1.0 pp. lower at freestanding establishments. There was a slight uptick in the share of monthly expenditures going toward online purchases versus a year ago, with traditional brick-and-mortar retailers seeing a 0.2 pp. rise and retailers that predominantly sell online seeing a 0.4 pp. increase. Compared to their relative averages over the tracking history, the Q1-2023 shares allocated to malls and online channels were down slightly, while they were up a bit for freestanding establishments and on par for open-air centers.

4.3%

Online via brick-and-mortar retailer

3.1%

Online via Internet-focused retailer

12.2%

Malls

38.2%

Freestanding Establishments

42.2%

Open-Air Centers

Consumer Sentiment

Consumer sentiment generally improved in Q1-2023, reaching levels that were higher than almost any point in 2022. However, the index remained about 20 points below the historical average. Although sentiment declined on a year-over-year basis in January for the 18th consecutive month, that streak came to an end in February when sentiment rose over February 2022, then continued to do so in March. The average monthly year-over-year growth in Q1 was +2.5%, significantly better than -23.4% observed throughout 2022. Slowing inflation is one of the main reasons for rising sentiment. Though still elevated, the year-over-year rate of inflation gradually eased throughout Q1-2023, with March seeing the lowest price increases since May 2021. Additionally, the personal savings rate was the highest in a year (though still significantly below historic trends), and overall hourly wages continued to increase but also at a slowing pace. Sentiment did decline in March from February (the first month-to-month decline since November 2022) due to the failure of two regional banks and fear of larger implications.

Consumer Economic Sentiment

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Q1 Sales by Tenant Category

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Retail and Food Services Sales Performance

U.S. Employment Situation

U.S. Shopping Center Performance Benchmark

Consumer Engagement

Consumer Sentiment

Shares of U.S. Adults

Percent Change

Building Materials and Garden Equipment/Supplies Dealers

Index

Index of Consumer Sentiment

Year-Over-Year % Change in Consumer Sentiment

4.5%

Online via brick-and-mortar retailer

3.5%

Online via Internet-focused retailer

12.9%

Malls

37.3%

Freestanding Establishments

41.7%

Open-Air Centers

Shares of Monthly Expenditures by Channel – Q1-2022

Compared to Q1-2022, the share of total monthly expenditures consumers allocated to goods in Q1-2023 was down 1.8 pp., declining to the lowest level since Q2-2022 when the share reached its all-time low. Retail sales data from the U.S. Census Bureau confirmed a slowdown in spending during Q1-2023 — March experienced the lowest year-over-year sales growth in nearly three years. Much of the share of consumer spending lost by goods was transferred to non-dining services, like leisure/entertainment, wellness/fitness and other personal services, while only a fraction went toward an increase in dining. The Q1-2023 share allotted to goods was the fourth lowest on record and was 2.0 pp. lower than the average of first-quarter shares over the past five years.

Source: ICSC Research

Drinking Places

Year-Over-Year Growth

+7.0% Y-o-Y

$503,192

$500,636

$499,351

The member organization for industry advancement, ICSC promotes and elevates the marketplaces and spaces where people shop, dine, work, play and gather as foundational and vital ingredients of communities and economies. ICSC produces experiences that create connections and catalyze deals; aggressively advocates to shape public policy; develops high-impact marketing and public relations that influence opinion; provides an enduring platform for professional success; and creates forward-thinking content with actionable insights – all of which drive industry innovation and growth. For more information, please visit www.ICSC.com.

12,153.40 12,198.80 12,227.00

January February March

15,500.10 15,548.10 15,528.60

February

% Change

68%

Reducing expenditures due to concern about the health of the U.S. economy

65%

Will increase their frequency of visits and overall expenditures at retailers that provide exceptional experiences

59%

Becoming more aware of company/brand values and are trying to buy more from those businesses they consider socially and/or environmentally responsible

57%

Planning to make more purchases from small/local businesses in 2023

48%

Shopping more at retailers that generally sell goods at a lower price point due to inflation

47%

Have reduced personal savings specifically because they are paying more for essential goods and services

Shares of U.S.

Source: ICSC Research

*Data as of Q4-2022 Source: Trepp

Commercial Real Estate Debt and Maturing Bank Loans

Stress in the banking sector caused by the failure of two regional banks in March has led to a growing focus on the commercial real estate (CRE) debt market, as an increasing volume of CRE loans are due to mature in the coming years. According to the Mortgage Bankers Association (MBA), at the end of 2022, there was a total of $4.53 trillion in outstanding commercial and multifamily mortgage debt held by bank and non-bank lenders. Banks held just over 38% of income-producing CRE loans (the single largest holder), 70% of which is owned by smaller regional and community banks. Multifamily made up the largest share (44.2%) of bank CRE loans, followed by office (16.7%), retail (9.4%) and industrial (8.0%), while the remaining share was comprised of hotels, health care and others, as reported by Cohen & Steers. The MBA estimates $728 billion (16% of total CRE loans) will mature in 2023 and another $659 billion (15% of total loans) in 2024. For banks specifically, Trepp approximates that a total of $270 billion in bank CRE loans will mature in 2023 and another $274.3 in 2024. Of the total maturing bank loans in 2023, 29% are office and 19% are retail, while in 2024, 30% will be office and 17% retail.

Office Share

Industrial Share

U.S.$ Billions

Retail and Office Comprise Nearly Half of Total Maturing CRE Bank Loans in 2023 and 2024*

$292.3

Share of Total Maturing CRE Bank Loans

$292.3

$274.3

$277.2

$270.4

Total Maturing CRE Bank Loans

Multifamily Share

Other CRE Share

Lodging Share

Retail Share

Connect.

Clothing and Clothing Access. Stores

Furniture and Home Furnishings Stores

Sporting Goods, Hobby, Musical Instrument, and Book Stores

Electronics and Appliance Stores

Commercial Real Estate Debt

* Seasonally adjusted ** Excluding motor vehicles, auto parts and gasoline