Three years after the recession, economic stress is increasing in Washington area households as the unemployment rate remains elevated, prices rise and home values remain depressed.
According to Delta Associates’ household stress index, which accounts for the rate of inflation, unemployment and real estate values, households experienced a rise in stress during 2011.
The stress index peaked locally at 29 in 2008, compared with a 10-year average of 2 and a national 10-year average of 9. Locally, the stress index declined during 2009 but climbed again during 2010 and 2011, as the prices on consumer goods increased and growth in housing values was lackluster.
Looking forward, we expect consumers to remain under stress during 2012 and 2013, at least compared to historic levels, limiting consumer confidence and tightening spending. Although consumers are starting to show eagerness to spend, spending remains lackluster compared to past recovery cycles.
With consumers under stress in the near-term, what can we expect for retail growth over the next five years? E-commerce is projected to grow through 2016 at an 8.5 percent annual dollar sales growth rate, according to Nielsen. This is followed by club and dollar stores growing at 4.9 percent and 4.8 percent, respectively.
It should be no surprise that e-commerce is projected to experience a faster growth rate, as advancement in technology continues to make shopping online easier. Regardless of this growth, there will continue to be a demand for brick-and-mortar stores, offering convenience and quick access to goods.
Discount stores offering club memberships or “dollar” prices are expected to make gains through 2016, as consumers continue to stretch dollars during the economic recovery. Although the Washington area is known for elevated income levels, discount retail should continue to expand locally with even the wealthy shopping for bargains.
Although a handful of retailers have closed in the Washington area because of financial struggles during the recession, other retailers looking to break into or expand in this market have been eager to backfill this space. For example:
H&M plans to fill the space vacated by Pottery Barn in Chevy Chase Pavilion and space vacated by Borders in downtown Silver Spring.
Regency Furniture has leased space at Crossroads Center in Fairfax County, filling space vacated by Borders.
Nordstrom’s Rack has leased space at 8027 Leesburg Pike in Tysons Corner, filling space vacated by Filene’s Basement.
Nike will fill the space vacated by Barnes & Noble at 3040 M St. NW in Georgetown.
The retail market in the Washington area should gradually recover during the rest of 2012. Core and inner ring neighborhoods should rebound at a faster clip compared with the outer ring markets, as close-in centers have been able to retain and lure quality tenants from lower-end centers. Given demand for high-end (Class A) space, property owners will continue to invest — where the cash is available — in repositioning under-performing shopping centers either through upgrades or redevelopment. Currently, tenants seeking space are interested in newer, high-end space with high foot traffic. Centers that focus on everyday needs, such as groceries and other necessities, remain successful during economic downturns or slow-growth periods.
Elizabeth Norton is vice president and mid-Atlantic research director at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.