How the recent economic rollercoaster will affect retail property values
Since March 13, 2020 when our nation declared a national emergency for the global pandemic, it has been quite devastating to many families, businesses of all sizes, and employees with tens of millions of filed unemployment claims. While there is plenty of negative economic data to report in 2020 and 2021, it’s still quite surprising how consumer spending and much of the retail sector has continued to thrive or prosper.
Historically, consumer spending tends to represent upwards of 70% of the annual GDP (Gross Domestic Product), so this is a story to closely follow for the retail property sector. GDP is the monetary value of all finished goods and services made within a nation during a specific time period. GDP is closely associated with the retail property sector, especially.
In the four or five previous years (2016 – 2020), each consecutive year set all-time records for commercial space closings per square foot for the retail sector. In 2020, online sales only represented about 14% of all retail sales worldwide as compared with 86% at brick-and-mortar or physical storefront locations, so it’s not just Amazon crushing the retail competition. The online retail spending trend has consistently risen each year at a relatively steady pace, and the global pandemic hasn’t significantly changed these online sales trends.
The Brookings Institution made the following claims back in December 2020 about US consumer spending:
- The United States continues to be the world’s largest economy.
- The US still remains the world’s largest consumer market.
- Consumer spending was on pace to reach $12.5 trillion on both durable and nondurable goods and services, which was about $500 billion less than 2019.
Increasing E-Commerce Sales Figures
Please note that e-commerce (online retail sales for Amazon, Walmart, and thousands of other larger online sites) only represented the following percentages as compared to total retail sales nationwide:
* 9% of total annual retail sales were online in 2017
* 10% of retail sales were online in 2018
* 11.1% of retail sales were online in 2019
* 14.3% of retail sales were online as of the third quarter of 2020.
Online Spending Dollars
Online e-commerce retail spending growth between 2017 and 2020:
Stocks – Busts and Booms
The end of the first quarter (January 1st – March 30th) and the second quarter (April 1 – June 30) of 2020 was hit hard by the pandemic declaration that was first announced by the World Health Organization (WHO) on March 11, 2020. The stock market was especially devastated in both February and March 2020 as eight of the Top 10 worst all-time point loss days for the Dow Jones happened then.
Dow Jones All-Time Losses
Month & Year / Daily Point Loss
#1: 03/16/2020 / -2997
#2: 03/12/2020 / -2353
#3: 03/09/2020 / -2014
#4: 03/11/2020 / -1465
#5: 02/27/2020 / -1191
#6: 02/05/2018 / -1175
#7: 02/08/2018 / -1033
#8: 02/24/2020 / -1032
#9: 03/05/2020 / -970
#10: 03/27/2020 / -915
Source: Standard and Poor’s
However, we’ve seen the stock market levels reach peak all-time record highs for various indexes like the Dow Jones, S&P 500, and Nasdaq and individual stocks that are closely associated with the retail sector (Amazon, Walmart, and Apple) after the previous busts.
Rising Retail Spending Trends
It’s somewhat of a double-edged sword with both favorable and not so favorable results due to consistently rising retail spending dollars each year, the falling purchasing power of the dollar, and rising inflation costs for consumer goods. While your favorite $8 dollar restaurant meal from a few years ago is now $12, it has helped boost the annual consumer spending numbers since 2010.
Year Consumer Spending Percent Change
2019 $13.2T* +2.2%
2018 $12.9T +2.7%
2017 $12.6T +2.6%
2016 $12.3T +2.8%
2015 $11.9T +3.8%
2014 $11.5T +1.9%
2013 $11.2T +1.5%
2012 $11.0T +1.5%
2011 $10.8T +1.9%
2010 $10.6T +1.7%
Source: Bureau of Economic Analysis / *T = Trillions
It’s no question that the past year has been quite traumatizing for so many people. However, consumer spending and various investment sectors, partly led by residential real estate and stock values reaching all-time record highs in spite of the daily “gloom and doom” stories, continue to rise instead of fall.
An estimated 85%+ of American businesses are family-owned. If we can all visit our small retail stores to support them, this can be beneficial to your neighborhood community. As the lockdown orders hopefully ease up, the rush to go out and shop again may really boost consumer spending figures.
The true irony of this economic roller-coaster ride since 2020 is that more wealth is being created from the ownership of assets like real estate and stocks. This newfound wealth will likely inspire consumers to spend money. If so, we may see record consumer spending numbers and rising retail property values yet again.
About the author:
Rick Tobin has a diversified background in both the real estate and investment fields for the past 30+ years. He has held eight (8) different real estate, mortgage, and securities brokerage licenses to date and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the nation, and also writes real estate and financial courses for some of the best known schools in the nation. You can visit Rick Tobin at www.realloans.com for more details.