Retail REITs Expect Full Stockings This Holiday Season As Fears Of Consumer Pullback Dissipate

Retail landlords could be in for a very happy holiday, with revenues and occupancies up, shopping center traffic on the rebound and consumers loosening the purse strings ahead of the most important shopping quarter of the year.

Many of the country’s largest publicly traded owners of retail real estate were optimistic enough to boost their full-year guidance in the third quarter, anticipating stronger earnings than previously expected and a better pay-off for investors to ring in the new year. 

Kimco Realty, for one, now expects net income per diluted share to be in range of $0.50 to $0.51 against previous guidance of $0.44 to $0.46 per share. Other retail REITs raising their guidance for the year include Regency Centers, Brixmor Property Group and Federal Realty Investment Trust.

Kimco’s 96.4% occupancy in Q3 matched the company’s all-time high. It was also an increase of 20 basis points over Q2 and 90 basis points over the same quarter last year for one of the country’s biggest landlords of open-air shopping centers.  

“It's really the very early innings of this type of retail revival that we're experiencing right now,” Kimco Realty CEO Conor Flynn said on the company’s earnings call last month. “A lot of that outsized growth that we're experiencing today is driven by the lack of new supply over the last 13 years and then the rebound in demand.”

The country continues to see a tight retail market. Retail vacancy remained near a record low at 5.4% during the third quarter, according to Cushman & Wakefield, and several retail executives pointed to expectations tenants would be jockeying for quality square footage, especially given the prospect of a better-than-expected holiday shopping season.

Rent growth also continued during the third quarter, notching an average of $24.54 per SF, or 3.4% growth over the same period last year. That is on par with the average rent growth the market saw from 2017-2019, which Cushman & Wakefield suggested indicated a market rebalancing itself after an initial surge coming out of the pandemic.

Occupancy at Simon Property Group malls and outlets was 96.2% at the end of Q3, up 1% from last year. The company also saw its leasing momentum continue as average base minimum rents rose 2.3% for its malls and outlets. 

“The mall continues to be a unique gathering place,” Simon Property Group CEO David Simon said on the company’s earnings call Tuesday. “We all get too focused on whether it’s enclosed or has a roof on it. To me, it really doesn’t matter.”

Traffic at properties overseen by The Macerich Co. rose 2.4% in Q3 over last year, officials said, with 70% of the company’s retail centers seeing positive trends for the year. That puts traffic back at the prepandemic levels of 2019. 

While the company’s Q3 sales and year-to-date sales were down 1% from 2023, The Macerich Co. Senior Executive Vice President Doug Healey said all indicators point toward increases of 3% to 3.5% for the months ahead.

“Given the shortened season between Thanksgiving and Christmas, we expect holiday shopping to begin early and retailers to be more promotional than they were in the last couple of years, which is more in line with pre-Covid behavior,” Healey said during the company’s Wednesday earnings call. 

For the last few years, the economy has been buoyed by consumer spending fueled by stimulus checks and low interest rates. But consumer savings largely dried up by the beginning of 2023, according to research by the Federal Reserve.

Still, with savings dwindling, credit card debt is on the rise. The average household’s credit card debt was $10,680, per WalletHub’s Credit Card Debt Study from last month. That’s a nearly 22% increase from the low of $8,763 in the first quarter of 2021.

That activity is projected to continue. For the holiday season, consumer spending is expected to hit a record high of $902 per person, the National Retail Federation's most recent consumer survey showed. That total beats the previous record high set in 2019 by $16 per person and is $25 more per person than last year's total. 

Many of the nation’s largest retail owners and operators had been prepared for slower sales growth than the last several years. 

Amazon, the world's top retailer behind Walmart, saw third-quarter earnings that outperformed estimates from Wall Street as well as its own executives, who predicted last quarter that consumers would be more cautious with their spending. The e-commerce giant reported a 9% year-over-year rise in revenue in North America for Q3 and an 11% increase worldwide. 

Those results signaled hope for the holiday season, as Amazon faces increased competition from discount retailers like Temu and Shein in addition to the growth traditional retailers have seen in their online sales.

The online giant began the holiday sales season in October with Prime Big Deal Days, which brought encouraging news for the remainder of the year, Amazon Chief Financial Officer Brian Olsavsky said. Consumers are price conscious, but they’re looking for deals, Amazon CEO Andy Jassy said during the company’s earnings call last month. 

“This matches up well with our Prime events, which were well received and saved billions for our Prime members,” Jassy said. “It also led to paid Prime member growth accelerating in the quarter, which is hugely impactful for us.”

For traditional brick-and-mortar retailers, though, one headwind in a low-vacancy environment is limited options for choice locations in highly-sought-after markets. Historic lows in new shopping center construction compounds the issue but offers opportunity to owners of existing centers given a spate of high-profile retail bankruptcies this year.

“To underscore this limited availability, retailers are proactively reaffirming or assigning leases during the bankruptcy process to secure prime locations,” Kimco's Flynn said. “In 2024, 50 out of our 56 leases with tenants who declared and emerged from bankruptcy were either assumed or acquired by creditworthy tenants.”

While a tenant filing for bankruptcy can be a hit to a retail landlord, Regency Centers Corp. works to “intensely” manage its portfolio in order to minimize impacts. Chief Operating Officer Alan Roth noted the company had very few locations with tenants entering bankruptcy in Q2 and repeated that success for Q3. 

“That's just a testament to really the team staying committed to quality merchandising and really our qualification process,” Roth said during the company’s earnings call. “We feel good about the strength of … the portfolio and the markets that we're operating in right now, but we're certainly always keeping a watchful eye on it.”

Adding to the demand for existing space is an eagerness to add stores from big-box retailers and general merchants. Big-box titans Walmart, Target, Home Depot and Lowe's are all looking to add more stores, Agree Realty Corp. CEO Joey Agree said.

“I would attribute that less to the consumer environment and frankly more to the pendulum swinging back from the years of investment in e-commerce, and frankly neglecting the brick-and-mortar experience,” Agree said during the company’s Oct. 23 earnings call.

“Now tenants [realize] that to fulfill the true omnichannel future that we're heading toward, they're going to have to continue to invest, and that includes adding store counts to their fleet.”

Another headwind that NNN REIT Inc. is anticipating for 2025 is a continuation of the elevated term fees the company has seen this year. The company has rent growth embedded in much of its portfolio, NNN REIT CFO Kevin Habicht said, but term fees will need to be offset by rent growth coming from its portfolio as well as acquisitions.

“The good news is the acquisition pipeline … looks pretty solid and I think our implied volume in the fourth quarter looks pretty good relative to our total for the year,” Habicht said during the company's earnings call. “And so far, [the] quarter feels like it’s shaping up pretty well.”