Top CBRE Researcher Ebere Anokute: E-Commerce’s Impact Is ‘Overblown’

It’s difficult enough to pinpoint where commercial real estate sits in a cycle with macroeconomics, inflation, interest rates and employment trends all moving at once, and often in different directions.

Retail makes that read even more complicated, with changes to population migration, shifting consumer behaviors and spending, and what are traditionally the most complex leasing structures of the major asset types. But CBRE’s latest numbers explain why retail stakeholders are on an upswing: U.S. retail availability sat at 4.9 percent in the first quarter, while construction completions fell to a record-low 4.7 million square feet.

Still — consumers are cautious and demand is never uniform. And store openings and closing, spending data and absorption all tell different parts of the story at different times.

Commercial Observer caught up with Ebere Anokute, CBRE’s head of retail research for the Americas, at ICSC Las Vegas to discuss how he reads the signals, which markets are outperforming, and why physical retail demand remains stronger than many assume.

This interview has been edited for length and clarity.

Commercial Observer: Retail seems to be benefiting from a lack of supply and a lack of new development. Can you talk about the state of the market and what you’re seeing from your end?

Ebere Anokute: Definitely. It’s a very positive moment right now. The market is really benefiting from that supply-constrained environment.

Overall availability is at near historic levels. We’re seeing the lowest availability we’ve had in our dataset, which goes back to 2005. So, at least over the last 20 or 21 years or so, we’re seeing the lowest availability.

A lot of that is also because of some outsized demand. We’re seeing a lot of activity from service tenants in the personal service space — hair salons, beauty salons, lifestyle services — as well as grocery tenants, fitness and concept fitness, especially, absorbing some vacant anchor space from retailers that might have gone out of business.

Overall, we’re seeing a really healthy blend between outsized demand and very low supply, which is creating a positive scenario for retail.

Which markets are outperforming right now?

The Sun Belt is not a new story, right? It’s a story we’ve all been hearing for a while, and it is being reinforced in the day to day.

When it comes to retailers, we’re seeing a flight to quality, where they prefer the newer product to some of the older, potentially obsolete product on the market. As a retailer, you want to open in the newer center, or the more shiny, recently renovated location, versus the older one.

Although construction is pretty subdued across the country, most new retail construction is happening in the Sun Belt region, which is also informing the levels of absorption in that part of the country. Cities like Dallas — there are new suburbs forming around that metropolitan area — Phoenix, Houston and a lot of Florida are where we’re seeing massive population growth, and we know that retail follows.

That’s where we’re seeing the new construction, and that’s where we’re seeing the retail following.

Is population growth and migration what you’re looking at most closely?

I look at consumer spending as well. I think of consumer spending as a leading indicator of demand. The more consumers are spending, the more demand there is for physical retail, because we know that the majority of overall retail sales are happening in physical stores.

Online accounts for around 16 to 16.5 percent, whereas the rest — 83 to 84 percent — is happening in stores. So the more consumers are spending, the more likely it is they’re going to do that in stores. 

A lagging indicator of demand is absorption. Once that space is used and comes off the market, that’s typically what you point to as a demand indicator. But, to me, that’s after the fact. There are months of negotiating that happen before that.

Spending, which we’re seeing on a monthly basis, is not growing in some outsized manner, but it’s trending positively.

With the uptick in discount stores and dollar stores, is that something you follow in terms of consumer behavior?

Sure. Those discounters are definitely among the categories that have announced the most stores, so we have to follow that. Store-opening announcements are maybe a middle indicator. The lease isn’t signed yet, and the money hasn’t really been spent yet, but they’re obviously seeing money spent, which is leading them to say that they’re going to open new stores.

Those discount retailers are definitely seeing a lot of growth as a result of some of the economic uncertainty that consumers are facing, leading them to search for value in different places.

But I do think value doesn’t always necessarily mean cheap. When I think of value, I think of: Is this product worth what I’m paying for? There are definitely consumers who are willing to save up for bigger purchases. It might not be inexpensive, necessarily, but they want to make sure they’re getting from it what they want.

But, overall, the state of the economy and the uncertainty around that is definitely having an impact on spending — it’s a mixed picture.

From a researcher’s standpoint, what is the biggest misconception about the market going into the second half of the year?

The biggest misconception is demand for physical retail.

I spoke to someone the other day who thought that e-commerce accounted for as much as 30 percent of overall retail sales, and that’s just not true. Retail data is hard to come by across the board. A lot of times, the most accurate data source we can point to is the U.S. government. The Census Bureau produces quarterly e-commerce reports, and, from that, it shows that e-commerce has been around 16 percent for the last two years.

This is going to be the hottest thing I’ll say: I think we’re almost at equilibrium, in my opinion, between stores and online. The adversarial nature of e-commerce killing physical stores is overblown.

We’re at a place now where the best retailers are doing both at the highest level possible, because that’s what consumers demand at this point.

Obviously, our society becomes more digital every second, so naturally e-commerce is probably going to continue to grow. But it’s not going to be this exponential rise that a lot of people were predicting five or six years ago. In the pandemic, when stores were closed and we had to shop online for everything, people thought the graph was going to keep going up. It went up, and then it went right back down when stores reopened.

People still want to do things in person.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.