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Small Cities Poised for a Rapid Retail Recovery

The population out of major metros during the pandemic will likely create a heyday for the retail sector in smaller cities

Small cities that have benefited from population growth during the pandemic are also poised for rapid retail recovery. These smaller metros include Nashville, Austin and Charlotte, and they are seeing increased retail leasing demand from both national and mom-and-pop tenants.

It isn’t only population growth driving the demand for retail. Major companies are also expanding in the Southeast. Amazon and Oracle have announced plans to open offices in Nashville and Austin, and Apple is expanding in Raleigh. “These smaller markets are attractive to smaller companies. Employees can have a shorter commute and can own some land or a house in case something like the pandemic happens again and they are working from home for six months or a year,” Jeff Pape, managing director at GBT Realty, tells GlobeSt.com.

The population and job growth stabilized smaller metros through the pandemic, so few saw the retail tumble that occurred in major metros. “In Nashville, [for example] we didn’t seem to have a slow down, especially on the development side, as what we saw in some of the bigger markets like New York or Chicago,” says Pape. “We continued to have an active 2020 for development, and I think that is part of the strength of the market as well.”

Now that the signs of the recovery are starting, Pape is seeing a clear change. New retailers are expanding into these markets. “We are now starting to see retailers look at the Nashville market that hadn’t looked at it before. We are probably seeing that more so in our urban mixed-use product type, and certainly many of these new retailers are used to being in that product type, but we are also seeing demand from different retailers in all of our projects,” he says.

The tenant mix is also shifting in favor of small boutique tenants. This trend was already common in major cities, where residents often prefer boutique shops. “There used to be more of a blend with strong credit tenants and regional credit tenants, and then you dropped down to the mom-and-pops,” says Pape. “We are seeing more and more that there are the national tenants and then you drop straight down to mom-and-pops, and we are seeing that trend more and more. We are being more particular about looking at the business plan for those tenants and decide what tenants that we think are going to survive.”

Although small cities are poised to recover quickly, there are still opportunities for investment in major metros; however, GBT is focused on tackling deals in secondary markets in the Southeast. “We are trying to be picky about what things that we chase,” says Pape. “There are so many opportunities in the Southeast.”

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