Discount retailers expected to continue leading national leasing

Discount retailers appear to have the winning formula for how to bounce back following the COVID-19 pandemic. The sector dominated retail leasing across the U.S. in 2022 and is expected to do the same this year, according to CoStar data, Commercial Observer reports. Dollar Tree led all retailers with 1.4 million square feet leased in 2022.

Meanwhile, Dollar Tree leased a little more than 1 million square feet, which was seventh overall last year, per CoStar. Dollar Tree also had the most leased space among retailers in 2021. Meanwhile, discount clothing retailers have also fared well, Commercial Observer reports.

TJX Companies, which owns T.J. Maxx and Marshalls, leased 1.3 million square feet last year — a significant improvement, given it didn’t crack the top 10 the year before. Clothing retailer Burlington wasn’t far behind with 1.2 million square feet in 2022, although it did fall from third place in 2021 to fifth last year, CoStar said.

Home goods retailer At Home leased approximately 1.4 million square feet last year, jumping from ninth place in 2021 to second among retailers last year, Commercial Observer reports. Gyms also had a good showing as Planet Fitness and Crunch Fitness finished fourth and 10th respectively. While retail leasing’s numbers were strong (250 million square feet last year), they fell from the year prior (279 million square feet) and in 2019 (281 million square feet), according to CoStar.

However, customers’ desire to save money should keep demand high for discount retailers, according to CoStar national director of retail analytics Brandon Svec. “When (customers) are seeking out value, because inflation is high and they need to stretch their dollar or because there’s economic uncertainty with a potential recession and potential job losses around the corner, all of those factors tend to be positive for discounters simply because their business model is one of value,” Svec said. CoStar recently announced that Dollar General plans to open more than 1,000 new stores in 2023.

Dollar Tree will open another 650 locations, while TJX and Burlington will launch 150 and 80 new shops, respectively. “We’re definitely expecting that expansion to continue here in the year ahead, as they’ve been really the most aggressive in announcing store openings for the upcoming year,” Svec said. Home goods and hardware stores might not have the same good fortune, as home sales in some U.S. cities have decreased, according to Svec.

A drop in home sales means there are fewer home improvements being made.

Overall, retail space demand is still high around the U.S. due to the limited storefront supply, Commercial Observer reports.

The shortage is a result of construction slowdowns following the 2008 Global Financial Crisis and the influx of e-commerce companies, Svec said.