Remote work is driving suburban retail boom

America’s unrelenting spending and remote work are driving a surprising comeback of retail—just years after it was deemed dead.

According to The Wall Street Journal, Walmart plans to open or expand 150 stores in the U.S. over the next five years—a stark reversal from its previous strategy of consolidating its big-box locations.

“We plan to build new stores in a way that we have not done in many years,” a Walmart spokesperson said.

As it turns out, Walmart isn’t the only company expanding its physical footprint.

In 2023, retailers committed to opening nearly 4,500 new locations while closing down 3,500, according to Coresight Research. That’s a net gain of 1,000 physical locations.

Meanwhile, quality retail space is getting harder to find as the vacancy rate for shopping centers continues to fall.

Citing data from Cushman & Wakefield, Axios reported that the national shopping center vacancy rate has plunged to 5.3%, the lowest in at least 15 years.

That’s a stark contrast to vacancy rates in the office sector, which reached a 30-year high of 18.3% in December, according to commercial real estate software provider CommercialEdge.

“Office is in the crosshairs,” Conor Flynn, chief executive of retail space operator Kimco Realty, told the Journal. “But retail is outperforming.”

Paradoxically, retail’s outperformance may be driven by the same forces that were expected to kill it.

Remote work is driving a suburban retail boom

While remote work may have emptied storefronts in city centers, it has been a boon to retailers in the lush suburbs, where more people are moving.

Suburban shopping centers have seen increased foot traffic as remote workers visit their locations more frequently during the workweek. Restaurants have also noticed the trend and are adjusting their locations accordingly.

“There is a permanent part of the work base that’s never going to return to the office five days a week,” said Tracy Kim, chief executive of fast-casual eatery Dig. “We just want to be where the mouths are, whether they’re at home or in the office.”

“You’re seeing retailers of all types look to go to some of these suburban centers,” according to Dana Telsey, a retail analyst who runs Telsey Advisory Group.

The shift from urban to suburban shopping was captured by Placer.ai, a location intelligence firm, which reported on how Covid changed Americans’ retail habits.

“Since mid-2020, suburban mall traffic during the “routine shopping” period of January to October has largely caught up with traffic to their urban counterparts while still pulling ahead during the critical holiday season,” analyst George Anderson wrote.

It’s not just remote work that’s keeping suburban malls full—the average consumer continues to spend big bucks despite being squeezed by inflation and higher financing costs.

Retail spending remains resilient

There’s a reason why the U.S. economy has outperformed expectations in recent quarters, and why suburban retail is thriving: Americans continue to splurge.

According to the Department of Commerce, retail sales increased by 3.2% in 2023. The biggest increase came from restaurants and bars, where spending jumped 11.3% from 2022.

“I have been consistently surprised at the resilience of consumer spending,” said Christopher Waller, a member of the Fed’s board of governors.

Economists say consumer spending should remain strong as long as jobs are plentiful.

“We continue to believe that you shouldn’t bet against the consumer until actual job losses are on the horizon,” Tim Duy, chief U.S. economist at SGH Macro Advisers, told the Associated Press.

The good news is unemployment remains low, but as Creditnews reported, cracks in the labor market are starting to emerge.