December 1, 2023
With consumer spending in a better place and an uptick in mixed-use projects across the country, retail holds promise for CRE innovation through this Holiday season.
Every CRE sector has been marred with unpredictability recently. That sentiment applies to challenged asset classes (office) as well as those experiencing growth, like retail. This past summer foot traffic and consumer spending shined a rather favorable light on retail corridors in major markets across the country, from Rodeo Drive in Beverly Hills to Michigan Ave in Chicago. In almost every major market, there was an uptick in visits to urban retail centers as well as an increase in consumer spending.
So what does the summer’s success mean for the coming holiday season? We’ll take a look at the retail sector’s momentum going into Holiday 2023 and what owners and operators can do to take advantage of growth opportunities as this particular sector continues to perform beyond everyone’s expectations.
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Signs of Recovery in Major Industries
Retail Consumer Insights & 2023 in Review
2023 Holiday Retail Trends
Retail Real Estate Trends
Maintaining Retail Growth Through 2023 and Beyond
Signs of Recovery
The last three years have been very tough on consumers. From record-high unemployment to high inflation and interest rates, the market has not been particularly buyer-friendly. So when experts began reviewing retail and consumer insights from spring and summer 2023, many were surprised to see the YoY and QoQ results. At first glance, the turnaround seems remarkable. But upon closer inspection, there are clear connections between the retail sector’s unexpected returns and the progress of other major industries.
Travel and tourism. 
If the 2020s have taught us anything so far, it is that industries are symbiotic. Success in one industry can often lead to success in another. The same goes for industry challenges. So as travel increased over the summer, mostly returning to pre-pandemic levels, consumer spending did too, despite economic conditions. Northspyre reports, “After years of saving during the pandemic, people are finally going on vacation and making big purchases,” which is ultimately good news for commercial real estate submarkets like mixed-use and retail.
Construction and development.
Another force giving momentum to retail real estate trends is the surge in construction projects across the country. According to Philadelphia-based “Rising Real Estate”, several mixed-use projects have begun again after a long Covid pause. One such project, 200 Spring Garden St. in downtown Philadelphia will introduce 14 stories of new residential and retail space to a popular part of town.
Chicago is another metro in a construction boom. Over the summer, investors and developers got approval for several high-fidelity projects all but guaranteed to boost retail foot traffic throughout the city. One such joint venture project, 170 N. Green St., will eventually become a 37-story mixed-use building with over 200 residences as well as retail space spanning the ground floor.
Automotive.
Retail and consumer insights over the spring and summer showed another stunning development; car purchases increased 20% YoY this past May despite car prices, interest rates, and the average cost of gas sitting at an all-time high. In addition to this consumer insight, Ford Motor Company also reported an increase in new-car production over the summer thanks to the growing demand for electric cars.
Automotive sales, production, and innovation ultimately gave consumers greater means to make large purchases such as furniture and appliances or travel farther distances to visit urban retail centers. All of this helps boost the retail industry and support retail development throughout the country.
Retail Consumer Insights from Summer 2023
With other industries showing rather encouraging signs of economic recovery, the retail industry was no exception, and many retailers not only experienced an increase in consumer purchases over the summer but an increase in foot traffic as well.
In April and May of 2023, the Commercial Department reported $684 and $686 billion in consumer spending on retail and food service sales, respectively, or approximately a 1% increase YoY. Additionally, Northspyre reported that “clothes, restaurants, and healthcare products reached their highest levels in months,” rounding out the finding that nine out of ten retail categories exceeded expert projections made earlier in the year.
These findings by Northspyre are further supported by the reports on retail foot traffic compiled by Placer.ai, a location analytics company. Placer.ai reported urban retail district foot traffic increased on average 5% YoY in six major metros across the country. Similarly to the symbiotic relationship of major industries lifting one another through economic hardship, the reason for the foot traffic increases can be attributed to major cities placing extra support and funding around activities and experiences that get people downtown.
One such effort includes increased funding for festivals and parades. Although many development projects kicked off earlier this year, Chicago’s Magnificent Mile has faced retail vacancy challenges. In recent years, however, municipal stakeholders have invested heavily in cutting-edge retail experiences such as exclusive pop-ups and flagship stores to get more people downtown and the efforts seem to be paying off. In Q3 2023, Mag Mile foot traffic grew by 8%, and the St. Patrick’s Day Parade was North Michigan Avenue’s busiest day in nearly 12 months.
Overall, foot traffic to outdoor urban shopping areas in major markets like San Francisco, Chicago, New York, and Philadelphia is still lower than pre-pandemic rates. But many metrics point to a recovery in the works and many anticipate the coming holiday season promises to carry retail into 2024 on a high note.
Looking Ahead to 2023 Holiday Retail Trends
Trends in retail foot traffic, travel trends, and shopping habits are all great predictors of what is to come in the holiday season ahead. While it’s impossible to predict what exactly will happen with consumer spending this holiday season, all indications point to a healthy mix of bargain hunting, upholding shopping traditions, and much travel.
#1. Turkey Wednesday will continue to be the most popular day for in-store shopping.
Traditionally, the US holiday shopping season kicks off in grocery stores on Turkey Wednesday, the day before Thanksgiving. This is such a popular shopping day that in 2022 it brought in more shoppers than Christmas Eve and Black Friday. Placer predicts this year will be no exception to this consumer behavior.
Retail foot traffic experts, Placer.ai, drilled into the specifics around Turkey Wednesday and found that discount grocery stores like Aldi and WinCo attracted the greatest number of shoppers among all of the popular grocery chains in 2021 and 2022. Shopping at stores and chains with lower prices has always been a popular choice among consumers, but this is expected to go a long way in 2023.
#2. 75% of shoppers will be on the lookout for deals this holiday season.
In a report about 2023 holiday retail trends segmented by age and gender demographics, PwC discovered that women in the United States were expected, on average, to spend 11% 
more this year on holiday purchases than last year. This indicates that spending momentum from the spring and summer has no signs of slowing down. That’s not to say however that shoppers won’t search for opportunities to save.
PwC reported that nearly 75% of shoppers, regardless of sex and age, will be voraciously deal hunting this holiday season to counteract historically high prices, an indication that shoppers may try to shop smarter and rely more heavily on brand loyalty. Retailers who take advantage of in-store exclusivity with discounts or brand experiences have the best chance of attracting shoppers through November and December.
#3. Tech and travel will combine this holiday season to make stays and shopping more custom.
The holidays have always been a popular time for travel, but this year many experts predict that the travel momentum from the summer will hold long into the holidays. What is unique about this holiday season’s travel predictions (apart from it being the second year with lifted travel restrictions) is that many consumers are expressing an increased interest in using tech to shop and book their travel and accommodations. 81% of travelers reported using mobile check-in for air travel, according to PwC, while 74% reported a preference for mobile hotel keys. The hospitality industry is expected to follow these consumer insights with nearly 75% of hotel executives stating they will be investing in personalized customer experiences to encourage loyalty.
Trends and Opportunities in Retail
Given that consumer spending constitutes two-thirds of America's GDP, leading industries closely monitor shopping trends and spending predictions as crucial influencers. This is particularly significant for sectors heavily dependent on consumer activity, such as commercial real estate. Therefore, any upturn in consumer spending following a recession holds substantial meaning for an industry like CRE—the retail sector most of all.
While several asset classes currently face occupancy and capital challenges, retail has been grappling with these issues since the 2010s, coinciding with the rise of online shopping. In response, retailers have become more adept at incorporating consumer insights to enhance the in-store experience according to customer preferences. This involves leveraging technology to personalize the shopping experience, redesigning brick-and-mortar stores to boost brand loyalty, and offering exclusive in-store products and promotions.
The retail sector is seeing positive results from these recent efforts, leading to upticks in both in-store foot traffic and the number of mixed-use projects getting approval and breaking ground throughout the country. This surge opens up numerous opportunities for retail, including expansions, upgrades, and innovations in major metros. In the current landscape, retail owners must stay on the cutting edge and take advantage of every ROI opportunity that comes by.
Maintaining Retail Growth Through 2023 and Beyond
The retail sector currently finds itself in a unique and favorable position, surpassing anticipated consumer spending and navigating economic conditions with resilience. Simultaneously, the upswing in mixed-use development projects presents extensive opportunities for the retail market to expand in the coming years.
For retail owners and investors, taking advantage of the innovation and momentum happening in retail could be the answer to better ROI and portfolio expansion. To do this, however, portfolio stakeholders must get the full picture of the contractual details of in-place tenants and lease agreements. This business intelligence functions as a pivotal tool for seizing expansion opportunities and implementing innovative in-store strategies.
Since 2018, Prophia has stood out as a premier AI platform specifically designed to tackle the unique data challenges of CRE. Armed with the capability to identify and abstract over 200 unique terms commonly found in complex CRE documents, Prophia’s advanced machine-learning model synthesizes critical portfolio data that is essential for effectively tracking encumbrances, managing critical dates, and swiftly capturing tenant terms with precision and efficiency.
Understanding encumbrances, co-tenancies, parking rights, exclusive use, and recovery options for tenants locked in at lower rates is crucial in retail leasing. Clear comprehension of current tenants' lease agreements is essential for investors and owners to seize opportunities in the retail sector, regardless of their specific goals. This clarity not only sustains deal momentum but also empowers them to take prompt action when financial opportunities arise.
Looking ahead to the 2023 holiday season, retail owners and investors can capitalize on the anticipated resurgence in customer spending. To thrive in this favorable environment, retail stakeholders should leverage these trends, employing innovative solutions to elevate in-store experiences and attract shoppers. By embracing technology and staying attuned to evolving consumer behaviors, retail owners can strategically position themselves for success, not only during the holiday season but well into the future.
If you would like to harness the power of next-generation AI and overcome some of today's most daunting market challenges, contact the Prophia team to learn about platform adoption for CRE.
