Boston Tied For Lowest Retail Vacancy Of Major U.S. Metro Areas

Boston's retail spaces have become a hot commodity, as constrained supply coupled with high consumer spending has businesses quickly filling up space. 

The retail vacancy rate in the Boston metro area is 2.9% this quarter and has continued to fall every year since 2020, according to a new report from Marcus & Millichap. Boston was tied with Miami and Raleigh, North Carolina, for the lowest vacancy rate of the 50 metros the firm tracks. 

The report attributes the low retail vacancy to strong consumer spending that has helped bolster top retail corridors like Newbury Street and driven traffic to suburban shopping centers. And it says the strength of this sector has become increasingly attractive to investors. 

"Consumer spending has been really strong across the country, and it benefits the major metros like Boston, and I think Boston is unique in that it's a very strong local economy," Marcus & Millichap Vice President Tom Shihadeh told Bisnow. "It has one of the highest area median incomes of all metros throughout the country, but it's not heavily supplied in retail."

In 2023, consumer spending increased by 5.9%, despite the Federal Reserve's interest rate hikes, Forbes reported. In January, U.S. consumer spending increased by 0.2% from the month before, according to the Bureau of Economic Analysis, and economists say it will continue to tick up this year, according to Forbes. 

Boston’s retail vacancy has also benefited from the limited new supply it has added in recent years. At the start of the year, less than 260K SF of retail was in the construction pipeline. This tight market has led average asking rents to rise to $21.85 per SF.

Although Boston's struggling office market hasn't done much to improve the city's foot traffic, retail tenants are still confident in the city's major shopping hubs like Newbury Street and the Prudential Center, Shihadeh said. 

"That's one of the most uniquely insulated retail pockets throughout the entire country," Shihadeh said. "You sort of have to be there. All retailers will say that they need to open up in fairly close proximity to one of their competitors."

The low vacancy has been a sign that landlords have backfilled space after previous tenants moved out, he said.

Boston has seen an increase in experiential retail concepts, especially in neighborhoods like the Back Bay. Dick's Sporting Goods plans to open its 118K SF House of Sport store in the former Lord & Taylor building at 760 Boylston St., the Boston Business Journal reported. The store, which will include a number of new attractions like a rock climbing wall and a batting cage, is anticipated to be the first in any major city.

Google plans to open its first retail store at 149 Newbury St., a new five-story mixed-use building developed by L3 Capital, the BBJ reported in August and the company confirmed in November. 

Although return-to-work efforts haven't translated into more foot traffic in the city's central business district, Shihadeh said there are promising factors that have kept retailers downtown. These include some of the new Class-A office buildings that have recently opened, such as MP Boston's 691-foot-tall Winthrop Center, which at full capacity could see roughly 4,000 people in and out daily.

MP Boston signed a major office lease at the project in December, and it has announced several new restaurants set to open at Winthrop Center, including Mexican restaurant Ariana, burger joint Big Grin, and bakery and sandwich shop Day Shift, the BBJ reported. 

"There are definitely changes in the short term with remote work, but Class-A has held up much better," Shihadeh said. "It feels like retailers have a positive perspective on the future of downtown Boston."

Shihadeh said that while the major retail corridors like Newbury Street and the Prudential shopping center continue to dominate, there has also been increasing demand from tenants for retail in Boston's suburbs.

"All of the suburbs really are absorbing this migration of the millennial generation that's moving out there," Shihadeh said. "There's a lot of underserved retail out there. You're seeing different tenants that are popping up in new concepts that are making their way out to the suburb."

State policy has also created more interest, with the MBTA Communities Law spurring suburban cities and towns to change their zoning to allow more density and mixed-use development. 

But Shihadeh said that these new zoning changes haven't gone into effect yet, and three factors — the cost of construction, obtaining financing for construction and the time it takes to build — have put a damper on developers moving forward with projects. 

"As developers are underwriting properties and they're asking themselves what is and is not actually possible, I think one of those three things would have to give in order for you to see a big increase in supply for either mixed-use or retail development," Shihadeh said.