Heading into the crucial holiday shopping season, several downside risks threatened to spoil what had already been an undeniably strong year for U.S. retail sales. Would the Omicron variant, fading fiscal stimulus, elevated inflation, and supply chain bottlenecks conspire to limit gift-buying this year? Early results on the holiday shopping season suggest the answer is ‘no’—consumers proved to be resilient and flexible just as they have been throughout the pandemic recovery, jolting holiday sales to a banner year in 2021.
Consumer demand for retail goods is the strongest in years and is not likely to let up despite the Omicron speedbump. Categories such as apparel, department stores, and jewelry stores were leading drivers of holiday sales growth, suggesting that Americans look forward to returning to offices and social engagements. This is an indication that recovery to urban core property fundamentals is imminent.
E-commerce is becoming a more powerful complement to in-store shopping. The pandemic forced retailers to innovate and refine their fulfillment strategies to accommodate unrelenting consumer demand for a flexible, multi-channel shopping experience. Retailers who have outperformed are likely to continue to gain market share and lease out more space to support their growing footprints.
A rapid consumer recovery, propelled further by a strong holiday, is a harbinger of recovering fundamentals. As established retailers expand footprints and digitally native brands increasingly open storefronts, expect fewer concessions and increasingly tighter conditions in 2022.
For most retail real estate, a recovery began in 2021, yet yields have remained flat and debt spreads have widened beyond historic average levels. Look for a higher share of allocation to return to this asset class, with heightened competition and improving NOI.
2021 Holiday Sales Growth
Retail Sales ex. Autos (Billions)