By Lauren Durniak

Although vacancy rates among office buildings and lab space in Boston typically command the most attention, one particular sector of commercial real estate is currently seeing a bright spot: retail. With the retail vacancy rate in Boston coming in at 2.9 percent, the city is ranked alongside Miami and Raleigh as the tightest market across the country. Occupying the top spot, it’s worth exploring what factors are behind this trend for Boston retail.

Supply and Construction

Perhaps the most straightforward explanation for the low vacancy levels stems from the lack of supply and construction in the city. The low retail vacancy rate has benefited from the continued trend of limited new supply coming to market in recent years, with only around 260,000 square feet of retail space in the construction pipeline at the start of 2024. According to a report by commercial real estate investment sales brokerage firm Marcus & Millichap, this year Boston will welcome the least amount of new retail space in nearly two decades. 

Increased Foot Traffic

While the pandemic took a major hit on foot traffic rates in cities across the globe, we are starting to see an upward tick in foot traffic in the Boston area.

According to the analysis conducted on several densely populated areas of downtown Boston, foot traffic has rebounded to 83 percent of its pre-pandemic level. This increase in activity supports the patronage of retailers, helping them to survive and thrive. It also makes for an attractive market for retailers. Since early 2021, retail vacancies in Boston have held in the low 2 percent range, which indicates that retailers are backfilling move-outs successfully.

Experiential Retail

Boston has a variety traditional stores, however a new type of shopping is growing in the city – experiential retail. Experiential retail offers customers experiences beyond traditional shopping, from hands-on activities to unique in-store events or personalized services. Within the past year, Boston saw several experiential retail spots open their doors. Notably, some of these experiential retail establishments also require large footprints, helping to tackle occupancy through larger leases than a boutique or a café.

Looking Ahead

Boston’s low retail vacancy rate represents a refreshing aspect of the city’s commercial real estate sector, offering a positive contrast from the challenges facing science and office spaces. Although some of the drivers – like new supply – are unlikely to change in the short term, some of the recent proposals and initiatives related to mobility and nightlife could have a significant impact on demand.

For instance, with the MBTA considering expanding service hours into late-night, will more operators of experiential retail attempt to cultivate more nightlife options in Boston? And then there’s the potential for hundreds of new liquor licenses, which could not only increase the demand for space but also open new areas as “destinations,” with trendy bars/restaurants anchoring shopping/entertainment districts.

Between the positive data and the energy of new ideas, Boston’s retail scene looks strong with plenty of room to grow.