A wave of high-profile store closings across the US by the likes of Sears and Kmart has cast a cloud over commercial retail property, and the relentless advance of eCommerce is only one part of that story.

Demographic megatrends such as a growing gap between rich and poor and the contrarian behaviour of Millennials are also affecting the market, but new opportunities are emerging, says Michael Acton, managing director at AEW Capital Management, which manages US$68.1 billion ($88.5 billion) in real-estate assets and securities.

Speaking at the 2018 Conexus Financial Real Estate and Private Markets Conference, held in Melbourne in February, Acton said the US has too much retail space per capita to begin with – twice as much as Canada and four times as much as Australia.

In addition, two demographic trends are wreaking havoc on the status quo: the gap between rich and poor has widened to levels not seen since the 1920s; and Millennials are behaving differently to how previous generations did at the same age, delaying decisions such as raising families and moving to bigger homes.

“We are entering a period where retail space is going to get rationalised and a lot of retailers are going to fail,” Acton said. “And it’s not unique to retailers. As central banks move away from zero interest, we will see a bunch of companies that should have died long ago, die. They are called zombie companies.”

Income inequality

In today’s America, the top 10 per cent of the population earn the same total income as the bottom 90 per cent, Acton said. With so much wealth tied up in so few hands, the multiplier effect is much less than when wealth was better distributed among people who spend a greater proportion of their earnings.

The median income of the least wealthy 50 per cent is about US$30,000 a year, which is “basically subsistence living”, Acton said.

“There is really no disposable income in that budget,” he explained. “Prior to the GFC, a lot of median and slightly below-median households were able to leverage up their assets and keep their consumption level high. That game is all over, you can’t do that anymore.”

While generally not good for retail, this trend is driving a push towards value-oriented consumption, including a boom in stores like Dollar General and Family Dollar – shops where everything costs a dollar.

Late-nesting Millennials

Another major demographic trend is the delayed purchasing decisions of Millennials, who are currently aged 15 to 35, Acton said. The oldest of them came into the job market during the onset of the financial crisis, which probably contributed to delayed decisions about starting families. But they are coming around to those decisions now.

“Our Millennials, as they start to have families, are going to start buying all that stuff that you do when you have a family,” Acton said. “They will buy houses or rent apartments, they are going to buy furniture, they are going to buy appliances, they are going to look for schools, they are going to move out to the suburbs.”

This would drive a prolonged period of “suburban renaissance” in the years ahead, he said, in contrast to the trend towards inner-city areas in recent decades.

And shopping centres would thrive on providing experiences. For example, in 2017, for the first time in history, US consumers spent more at restaurants than they did at grocery stores.

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