Retail rents mostly inch up slowly, don’t they? So, should you just plug current rents into your model and coast for a few years by indexing them up every so often? No! And here’s the reason why:
Correct analysis & application of rents must be based on close monitoring of the market, at least for the retail sector. There are 24 square feet of retail space per person in the U.S., compared to five in the U.K., four in France, and three in Spain and Italy per the International Council of Shopping Centers.
Yet, look around you. A bunch of retail is currently being built in the U.S., with a lot of it proximate to stores soon to be vacated as a result. That famous American pioneering spirit (move to improve) is still very much alive here. But this does result in significant fluctuations in neighborhood vacancy, since fickle shoppers tend to visit only the latest in bricks & mortar.
So yes – the highest rents do mostly inch up, but… they also move from area to area, causing the rest of the market to correct accordingly.
Rents correlate directly with supply and demand, and go both ways fast.