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Posts tagged "spending"

Home» Posts tagged "spending"

The Pandemic’s Uneven Effect on Consumer Spending

Posted on December 30, 2020 by Mike Kushner in Blog, Retail No Comments

When COVID-19 hit and the U.S. went into full lockdown, consumer spending took a sharp turn. Heading out to restaurants, bars, concerts, or the movies was no longer an option. Even now, nine months later, we are far from returning to how things were. The general public is wary or deterred by new policies like limited capacity, wearing face masks, and social distancing. This has all had a profound impact on how we’re spending our money, particularly on services or experiences. Instead, we’ve shifted our spending to physical goods to find other means of entertainment and enjoyment, and to make our homes more comfortable, because we’re spending considerably more time at home.

Considering all of this, plus the fact that 10+ million Americans are still jobless, the sluggish recovery of consumer spending on services is cause for concern. At the same time, retailers selling goods, especially online and through contact-free delivery, are in a position to grow their market share. Keep reading to learn how COVID-19 has had an uneven impact on spending, and what this might mean for our economy and commercial real estate long-term.

Spending Shifts from Services to Goods

Based on data from U.S. Bureau of Economic Analysis, spending on goods quickly recovered from the initial shock of the pandemic, returning to growth as early as June. But consumer spending on services is still more than 6 percent off pre-pandemic levels.

The reasoning behind these numbers is straightforward. As the pandemic severely limited people’s option to spend money on services such as dining out, traveling, and other leisurely activities, their spending shifted to physical goods because this was both more accessible and deemed the safer option for enjoyment and entertainment. People weren’t visiting public pools or taking vacations, so spending on items like swimming pools, bicycles, kayaks, etc. skyrocketed. For many retailers, these items were out of stock nearly all summer.

Furthermore, people began reallocating discretionary income formerly used for travel and entertainment to home improvements and renovations. We saw things like new appliances, cabinetry, and mattresses run out of stock while hotels, restaurants, casinos, and event venues sit vacant.

A Double-Edged Sword for Economic Recovery

While it’s certainly positive to see overall spending levels recover relatively quickly, the slow recovery of consumer spending on services is concerning for several reasons. First, the United States is a service economy, as the U.S. GDP reveals. In 2019, personal consumption expenditure on services accounted for 47 percent of the gross domestic product, making it by far the biggest contributor to the country’s economic output.

As the following chart shows, clothing and accessories stores experienced a 30 percent decline in sales compared to the same period of 2019. Similarly, food services and drinking places were hit with a 20 percent spending decline compared to last year’s total. Department stores and electronics experienced a 15 percent decline through three quarters of 2020.

At the other end of the spectrum, non-store retailers, building material and garden dealers, as well as grocery stores, have seen double-digit growth rates in the first nine months of 2020, as consumers shifted much of their spending online and outdoor activities boomed in face of the COVID-19 threat.

What This Means for Retail Locations

Some industries have found ways to safely reopen with limited capacity and new policies in place such as social distancing and mandating facemasks be worn. But even nine months after the start of the pandemic, things are far from “normal” and this includes bottom-line sales. Restaurants, bars, and hotels can only operate at 50% capacity or less which is a huge blow to the amount of business they can do in any given week or month. And shopping at retail locations is quickly being replaced by online shopping.

While some retailers have been able to accommodate customers online, many others, particularly small businesses and boutiques, were not equipped to make this shift. For businesses already on the brink of making ends meet, the pandemic was the straw, rather the wrecking ball, that broke the camel’s back. We see shopping centers with major vacancies and entire chains of corporate stores and restaurants bow out of business.

For commercial real estate, especially shopping centers and malls, the future is bleak. In contrast industrial real estate is rising in demand because of big online retailers needing to increase their storage and rapid distribution. People want their essentials (and even non-essentials) delivered quickly to their door-step. With businesses like Amazon offering free 2-day delivery for most items, ample and accessible storage facilities have never been more important.

And for consumers, the biggest takeaway from this major shift in spending is to be mindful and intentional about how and where you invest your resources. How we spend impacts the economy. Though you may hear phrases like “shop local” and think your individual spending is just a drop in the bucket, when all those drops are put together, it has a large impact. For those that don’t feel comfortable dining out, you can still support your local restaurants through takeout or delivery. And if you don’t desire shopping in-store, consider supporting small businesses through curbside pick-up or having items shipped to your home. Our collective spending habits today, even amidst a pandemic, are painting the picture of our economy well into the future.

Even after the impact of COVID-19 on the economy begins to correct itself, what do you think the impact on consumer spending will be long-term? Comments are welcome below!

[Online Resources] Real Estate, business, buyers agent, christmas shopping, Commercial Real Estate, COVID, COVID-19, CRE, Economy, harrisburg, holiday shopping, Mike Kushner, money, Omni Realty, online shopping, pandemic, pennsylvania, retail, retail shopping, spending, tenant representative

Central PA’s Demand for Rental Units is Booming: What this Means for Economic Growth

Posted on July 30, 2015 by Mike Kushner in Blog, CPBJ Articles, Local Market, Trends No Comments

Note: This article was originally published by the Central Penn Business Journal. Click here to read the original version.

Earlier this summer the Tri-County Regional Planning Commission (representing Cumberland, Dauphin and Perry counties) met to discuss current and future socio-economic trends that will influence land-use decisions and related impacts.

The data and statistics shared provided insight into some powerful trends that are emerging in the local real estate market. Based upon the growing population of both Baby Boomers and Millennials that will continue to make up the majority of our population in the Harrisburg Metropolitan Statistical Area (MSA) well into the future, these generations are going to have a profound impact on our economy.

While you might think the demographics of these generations would both want a large home in the suburbs, you would be mistaken. Rather, for various reasons, both Baby Boomers and Millennials are anticipated to drive the demand for rental units. Let’s now take a closer look at what exactly is causing this trend and the implications it will have on local economic growth.

The Cause: What’s fueling this trend?

According to the information shared by the Tri-County Regional Planning Commission, this year, Millennials (age 15-34) will make up one-third of all adults in the United States and will finally outnumber Baby Boomers. While the ultimate goal for these Millennials, especially ones who have started a family, is to move into the suburbs, the majority of this generation doesn’t yet have the savings they need for a down payment on a home, thus the necessity of renting. Additionally, more than half of millennials are likely to move in the next five years, making renting housing even more of a convenient and desirable option.

Now let’s take a look at why Baby Boomers are also fueling the demand for rental units. Nationally, one in five people are expected to be over the age 65 by 2030. Older Empty Nesters (age 65-74) are the fastest growing segment of the population in Harrisburg MSA. While this reflects a growing aging population, Baby Boomers are not yet ready to slow down. They are mobile, social and want to remain as active and independent as they can. Rather than being strapped down by caring for a home that is too large for their empty nest, Baby Boomers are moving into luxury rental units that give them ultimate flexibility, freedom and a close-knit community.

The Effect: What does this means for economic growth?

Retiring Boomers will Hurt Consumer Spending and Economic Growth

Baby Boomers are currently our most affluent generation and will be responsible for the largest transfer of wealth over the next 30 years. With that said, Baby Boomers will actually hurt economic growth by not spending their money on things like housing, insurance, appliances and apparel. Rather, they prefer to spend their income on entertainment, travel and social experiences. To further illustrate this point, in Harrisburg MSA, the average household expenditures by 2015 show people spending as much on entertainment as they do housing.

Household Expenditures by Geography 2015

Such spending habits again strengthen the demand for rental units as they require less money and maintenance than owning a large, single-family home. As a result, we can expect rental prices to remain competitive, and while they may rise slightly in response to demand, they will remain reasonable  to both Baby Boomers and Millennials relative to income and in comparison to the cost of owning a home.

Apartment Asking Rent Harrisburg MSA 2015

As for rental vacancy rates, these are expected to remain low through 2019. This is great news for owners of rental properties and developers who are looking to expand into this area. It’s a safe bet that a growing number of renters will be in the market for housing that will allow them to live life well, while still conserving money for whatever their priorities may be.

How Central PA can best harness this economic growth

Central Pennsylvania would be smart to take note of this important trend. If you identify with either Baby Boomers or Millennials, know that renting may be a viable option for you at this point in your life. With new projects on the rise, you are likely to find some very nice accommodations at competitive prices that are far less than the cost of a mortgage. This will allow you to channel your wealth into saving for a future home of your dreams, or spending it on life experiences you’ve been waiting until retirement to enjoy.

For businesses, real estate brokers and developers, this is also a powerful trend that can impact your industry. Get to know the Baby Boomers and Millennials – their habits, preferences, indulgences and priorities. Appealing to these growing generations will ensure your business will also continue to grow well into the future.

Click here to read the original article published by the Central Penn Business Journal.

[Online Resources] Real Estate, apartments, article, baby boomers, blog, camp hill, central pa, central penn business journal, commercial, cpbj, economic growth, Economy, future, harrisburg, housing, lancaster, local, mechanicsburg, Mike Kushner, millennials, money, news, pennsylvania, prediction, renting, spending, trends, writing, york

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