While 2023 may not be quite as strong as 2022, we are looking forward to a very good year.
As expected, we are starting to see some vacancy creep into Nashville and into all markets across the country. There are a couple of reasons for this.
- With the increase in interest rates, businesses that used SBA loans, or lines of credit for operating capital, have found the cost of that has doubled, making credit as a source for operating capital much more difficult. This is especially impacting franchisees finding it difficult to access capital at a price they can afford. Some will fail, which will in turn open up retail space.
- We also see increased retailer bankruptcies, as witnessed with big boxes like Bed Bath & Beyond and Party City. This trend is likely to impact smaller retailers as well, and I anticipate some six to nine-thousand-square-foot retailers may go out of business.
Restaurants continue to thrive in Nashville and the US. They are the one and only business the internet cannot recreate. And now that COVID has subsided, delivery sales are only 15 percent of restaurant sales. The restaurant industry requires brick-and-mortar locations. We also see the continued rise of service industry tenants as opposed to soft goods retailers.
The internet is very good at replacing soft goods retailers and commodities, and for the past decade, we have seen the store footprint of some of those tenants shrink. The real estate world is evolving from a retailer point-of-view to a focus on Amazon-proof businesses – businesses that cannot be outbid by Amazon and Walmart. This has driven the rise of the service-based industry, including fitness users, health and beauty users, tax and finance professionals, and others, much of which is franchise or entrepreneur driven. There are very few corporate small shop users. A center containing three soft goods retailers and one restaurant will most likely become three service retailers and a restaurant.
Meanwhile, as long as the job market remains strong, fewer people need to buy themselves a job by opening a franchise. And I do think the job market is going to remain strong.
There continues to be a natural flow of retailers, jobs, and company headquarters moving to the Southeast from the Northeast, West, and Upper Midwest regions for tax advantages. In higher tax rate environments, wages are higher to cover living expenses and employee taxes. Many companies are discovering it is just too expensive to do deals in tax-heavy markets. This is very good for Tennessee, Florida, Georgia, and the Carolinas.
TO THE FUTURE, AND BEYOND
With a full year of financing issues ahead and a supply chain that is in recovery, 2024 could be more challenging. We are experiencing the results of little to no development for the last 1 ½ to 2 years. Space has been eaten up, and no one has built more space, so there is less and less space available for retail. As supply and demand continue to adjust throughout the course of 2023, and the retail industry evolves, we are proud to represent local, regional, and national retailers in the Nashville marketplace and provide them with the market knowledge they need to expand their businesses. To learn more about our retail representation services, contact Joey Valenti at email@example.com.