Puerto Rico's Retail Property Asking Prices Drop 7.5% in 2023, New Opportunities Emerge

Puerto Rico's retail real estate market has recently undergone a remarkable shift, marked by a substantial drop in asking prices. The average price per square foot for retail properties has plunged from $222 to $191, indicating a staggering decline of nearly 14% in the past month. This sudden downturn comes on the heels of a six-month recovery period during which the index reached its peak of $228 per square foot in both March and June, following an initial starting point of $207 per square foot at the beginning of the year.

Analyzing data from RED Atlas retail listings, it becomes evident that a significant portion of retail properties, approximately 62%, has been languishing on the market for nine months or more. It is noteworthy that RED Atlas data collection dates back to July 1, 2022. Digging deeper into historical listings, it is observed that 45% of properties are withdrawn from the market after a prolonged period of six to eight months. Interestingly, smaller listings below 20,000 square feet have been changing hands at a faster pace, with approximately 54% of them finding new owners within six months of being listed.

On the other hand, listings of 20,000 square feet or more are encountering considerable challenges in attracting buyers. A striking 32% of these larger properties have remained unsold for over nine months, indicating a potential lack of demand within this segment. In particular, big box retail stores continue to grapple with adversities in the Puerto Rican market. In contrast, high-end retail properties have displayed resilience and remain in demand, experiencing swifter turnovers compared to class B and C retail. The recovery of these lower-tier properties has been notably slower in the aftermath of the pandemic's impact.

Compounding the retail market's difficulties in Puerto Rico are broader weaknesses, including the bankruptcy of prominent big box retailer Bed Bath & Beyond . These challenges paint a stark picture of the evolving landscape within the region's retail real estate sector.

Examining transactional activity, average retail prices in the second quarter of 2023 stand at $276,000 per transaction. Comparatively, the volume of transactions in the same quarter of 2021 stood at $169 million, which slightly decreased to $123 million in 2022. However, projections for the second quarter of 2023 point towards a substantial decline, with volumes expected to close between $50-60 million. Furthermore, the count of transactions has taken a significant hit, with only 168 transactions recorded thus far in the second quarter of 2023, following a peak of 402 transactions in the second quarter of 2022.

While it is essential to acknowledge the data collection limitations of RED Atlas, which scrapes 50 listing sites in Puerto Rico and employs artificial intelligence for classification, occasional periods of incomplete data lasting 2-3 days may have influenced specific data points such as exact days on the market. Furthermore, minor errors and typos in the listing data might marginally impact certain results. Nonetheless, RED Atlas has made concerted efforts to eliminate outlier information and provide accurate insights.

Amidst these challenges, there is a glimmer of hope in Puerto Rico's retail sector, particularly with the emergence of smaller retail openings. Recent reports highlight the successful launch of Lúpulos Hermanos craft brewery in Carolina and the upcoming debut of Greek Kouzine in Condado, both of which are poised to entice customers with their unique offerings. These examples serve as testaments to the thriving nature of smaller retail ventures in the market.

Additionally, Plaza Las Américas, a prominent shopping center, has recently announced the arrival and expansion of new stores. Standout additions include Liage, Cake by Glorimar, APM Monaco, Studio F, and the expanded space of Zara. These developments contribute to a vibrant and diverse fashion and gastronomy offering, enhancing the overall retail experience for consumers.

In conclusion, Puerto Rico's retail real estate market has experienced a sudden and significant drop in asking prices, primarily driven by the struggles faced by big box stores. Nevertheless, high-end retail properties have demonstrated resilience, boasting faster turnovers, while smaller retail ventures continue to generate positive momentum. However, the overall transaction volume and count have suffered a noticeable decline, suggesting a potential slowdown. As the retail landscape evolves, market participants will closely monitor these dynamics to make informed decisions in this rapidly changing environment.