Watch Out E-commerce. Brick-and-mortar Retail is Gaining on You

It’s been a popular narrative for years: Online shopping is slowly killing brick-and-mortar retail. But what if this narrative isn’t true?

It’s a question addressed by Lee & Associates in its second quarter 2022 national retail overview. In its latest research, Lee & Associates says that in-person shopping is steadily regaining its popularity.

And this, the company said, is taking a toll on e-commerce sales.

According to the overview, merchant demand for retail space in the United States is higher than its been since 2017. Net absorption in the U.S. retail sector is now on track to expand by nearly 80 million square feet in 2022.

Empty storefronts are filling up, too. Lee & Associates reports that the overall retail vacancy rate fell by 60 basis points in the first and second quarters of this year, dropping to 4.4%. That’s the lowest retail vacancy rate on record.

What’s behind this? Lee & Associates pointed to financially strong consumers. Last year, in-person shopping gained on e-commerce, which Lee & Associates says might be a first. The company pointed to an analysis by Mastercard saying that U.S. online purchases fell in March for the first time in a decade.

Then there’s the Amazon effect. As Lee & Associates says, the retail giant’s online sales fell 3% in the first quarter of 2022 to $51.1 billion. Amazon wasn’t alone, though, in seeing its online sales fall. Etsy and Shopify also posted unexpectedly low sales, Lee & Associates said.

Meanwhile, rent growth for physical retail is averaging 4%, the most in more than a decade in the United States.

Investors are taking note. Lee & Associates said that more than $23 billion in retail properties traded hands in the first quarter of this year, the most ever.

Several Midwest markets are enjoying low vacancy rates in the retail sector. Indianapolis’ retail vacancy rate was 3.6% in the second quarter, while this rate stood at 3.1% in Minneapolis, 3% in Madison, 3.6% in Nashville and 3.9% in Columbus.