As brokerage JLL sees it, the return of foot traffic to retailers in busy city hubs could take at least two years, despite the emergence of positive signs in some cities across the country.
Naveen Jaggi, president of JLL's Americas retail advisory services, said urban retail hubs need at least two important indications for something resembling a full recovery: an office use rate of between 85% and 95%, and the return of international travelers.
“Until Asian tourism is back in the U.S., until we see European traffic back in the U.S., we’re not going to see that urban recovery, we’re not going to see business like we saw in 2018 and 2019,” Naggi said during a panel session the brokerage firm presented Monday at ICSC 2022, the annual trade show in Las Vegas for shopping center owners. “They’re all tied together.”
The wait for office workers could be much longer, even as office use has ticked up steadily in the past year. The average big-city office occupancy has been hovering just over 43% for the past few weeks, according to security tech provider Kastle Systems, and its building data shows that few cities have cracked 50%.
A three-day weekly in-office schedule for most workers could be enough to bring benefits for stores and restaurants near urban office buildings, but more is needed on the tourism side, according to the panel.
Jaggi said New York is the bellwether city. It has yet to see tourist counts recover to its benchmark 55 million annual visitors — the tally dropped to about 5 million in pandemic-riddled 2020 and had only returned to about 15 million at the end of 2021.
“If I’m watching anything, I’m watching tourism numbers in New York,” Jaggi said. “When people fly into New York, they then go to somewhere else, like D.C. or Boston or maybe Chicago.”
Inflation, Supply Chain Concerns
Ryan Severino, JLL’s chief economist, said he’s monitoring inflation and supply chain issues, which have cut into retailers’ profits and could disrupt store growth in urban hubs.
He’s expecting inflation to be brought under control within 12 to 18 months. “It’s going to take some time to unwind,” Severino said. “It’s going to take some time for the supply chain to catch up.”
Sellers of luxury and high-end fashion are expected to be among the initial winners in urban areas as the economy improves and visitors return, the executives said.
That said, the urban retail recovery is playing out unevenly, with faster rebounds in Houston, Atlanta and Miami, and more sluggish growth in Chicago, Boston and San Francisco, among others.
Here’s how some major urban retail hubs are faring, according to JLL reports released during ICSC.
New York City — The city is benefiting from a 14% uptick in domestic tourism compared with 2019, and foot traffic in Times Square was up 186% from a year earlier for the first four months of 2022. Fifth Avenue foot traffic is up nearly 90%, with both of those neighborhoods among the most improved in the nation among major retail neighborhoods.
Los Angeles — On-premises dining is still down 13% from pre-pandemic levels. But enclaves such as Melrose Avenue and Third Street Promenade in Santa Monica are among the nation’s fastest rebounders for big-region foot traffic, up 50% and 54%, respectively, from a year earlier, according to JLL and consulting firm Placer.ai.
Chicago — Foot traffic in Chicago’s prime urban corridors, including Fulton Market and Wicker Park, is now within 10% of 2019 levels. Michigan Avenue remains below pre-pandemic levels but 55% above the same point in 2021.
Miami — Florida is among the states seeing the strongest uptick in sit-down dining. Miami's volume of seated diners at full-service restaurants was up 31.7% from a year earlier in April, among the strongest gains of major cities, according to JLL and reservation tech provider OpenTable.
San Francisco — The city’s urban hubs are still below 2019 levels for shopper foot traffic, but volume has more than doubled in Union Square and is up more than 74% in Hayes Valley. Luxury watch and jewelry seller Van Cleef & Arpels signed a lease earlier this year in Union Square to take over a space vacated by fashion retailer AllSaints.
Washington, D.C. — Restaurant reservations are still 32% below 2019 levels. But foot traffic is up 57% from a year earlier in the 14th Street commercial district.