CompStat: Washington D.C. Office Buildings DOGE Could Target, E-Commerce Soars, Industrial Big Box Slowdown, and Barnes and Noble Comeback

SKIP AHEAD TO

• Economic News/Updates
• Potential DOGE Targets for Federal Office Space Reduction in Washington D.C.
• Barnes & Noble’s Strategic Store Expansion and Leasing Trends
• Atlanta “Big Box” Industrial Stands Out As Major Market Continuing To See Quarterly Gains in Starting Rent
• Lease Terms and Transaction Sizes Diverge for Central Business District vs. Suburban Retail Tenants

Economic News/Updates

• E-commerce’s share of total retail sales expanded for the ninth consecutive quarter in Q3 2024, reaching 16.2%.
• U.S. retail sales excluding automotive were up 3.4% on Black Friday compared to last year with online retail sales increasing to a 14.6% share but in-store sales ticking up just 0.7%, according to Mastercard Spending Pulse.
• Consumer sentiment improved for the fifth consecutive time in December, inching up 2.2 index points from November, boosting the index to its highest level in seven months
• The office-using job market improved in October with 15.7% more open positions compared to September while unemployment rose 2.2% month over month in November. 
• While East Coast ports generally saw a decline in volume in October from September, the Port of Long Beach saw the strongest month in its history, moving a total of 987,191 TEUs, up 30.7% from the same time last year
• CPI proved sticky in November, as it increased  2.7% annually for all items, 2.4% for food alone, and 3.3% for all items minus food & energy
• Finally, the Federal Reserve cut its benchmark rate by another 25 basis points in December, its third such reduction in 2024, bringing the Fed’s total rate reduction to 100 basis points this year

Potential DOGE Targets for Federal Office Space Reduction in Washington D.C.

The Senate DOGE caucus, led by Sen. Joni Ernst (R-Iowa), recently held its first meeting to discuss a 60-page report proposing reforms to federal telework policies and underutilized government office space, including consolidating offices, relocating agencies, and achieving higher utilization rates. These efforts align with the broader DOGE agenda, championed by Elon Musk and Vivek Ramaswamy, to streamline government operations and reduce spending. CompStak’s data and analysis identified at least 26 office buildings in Washington, D.C., where federal agencies occupy 33% or more of each building and are paying rents that exceed the current market average by 1.3% to 58.2%. These properties could become prime targets for consolidation or reduction, especially those housing agencies highlighted for significant downsizing or elimination, such as the U.S. Department of the Treasury’s Office of the Comptroller of the Currency, the Internal Revenue Service, and the Department of Justice.

Barnes & Noble’s Strategic Store Expansion and Leasing Trends

Barnes & Noble is making a comeback, expanding its store footprint under CEO James Daunt with 57 new stores in 2024. Targeting both vacated spaces like former Bed Bath & Beyond locations and smaller formats, the retailer continues to attract landlords with its broad demographic reach and ability to drive foot traffic. CompStak’s data highlights Barnes & Noble’s leasing trends over three transformative periods: its early growth after going public in 1993, the peak-to-trough years of 2010–2018, and its post-2019 acquisition by Elliott Advisors leading into the current recovery phase. National averages for Barnes and Noble store sizes and starting rent peaked during 2010–2018 but have declined in recent years, as shown in CompStak’s data. The retailer’s shifting strategy is also evident in observing store openings and closings in specific neighborhoods. For example, in Manhattan’s Upper East Side, Barnes & Noble leased a 54,400-square-foot store at 144 East 86th Street in 2006 for $300 per square foot, nearly matching the neighborhood average for rent. After closing in 2020, the retailer returned in 2022, this time leasing a nearby, significantly smaller space for $44.79 per square foot—well below its previous neighborhood rent and the rate a 2019-shuttered Duane Reade had paid at the same address.

Atlanta “Big Box” Industrial Stands Out As Major Market Continuing To See Quarterly Gains in Starting Rent

“Big box” industrial – buildings of 200,000 square feet and larger with ceiling heights of at least 28 feet – has loomed large in the overall market since the pandemic. However, the sector is transitioning into a different environment characterized by oversupply and higher vacancy, a new Colliers report has found. And leasing demand appears to be hitting some speed bumps as quarterly gains in average industrial starting rents have compressed in recent quarters across major markets, as was reported recently in CompStak’s 2024 Biannual Industrial Market Report. Even as starting rents stabilize from a recent decline, Atlanta was one of the only major markets to maintain positive quarterly gains in average starting rent from 2022 to Q3 2024, according to CompStak data, peaking at 11.3% quarter over quarter in Q4 2022 and increasing 4.8% in Q3 2024.

Lease Terms and Transaction Sizes Diverge for Central Business District vs. Suburban Retail Tenants

 In an effort to limit exposure to rental increases, many retailers are opting for longer-term leases and, in general, for smaller footprints, according to a recent national CBRE report. The report found average retail lease term lengths in the first three quarters of 2024 rose to 96 months, compared to 90 months in the same period in 2023. In general, the report found tenants signed longer lease terms for smaller footprints over the past year proximate to where consumers live. Suburban retail tenants signed leases with terms on average of 72.9 months in the first three quarters of 2024, compared to 83.4 months for urban retail over the same period, according to CompStak data. Average lease term for suburban retail declined 8.5% through Q3 2024 compared to the same period last year, while Central Business District (CBD) retail average lease terms ticked upward slightly from 83.3 months from Q1 to Q3 2023 to 83.4 months in the first three months of this year. Additionally, the average lease transaction size for suburban retail decreased slightly from 5,000 square feet from Q1 to Q3 2023 to 4,516 square feet in the first three quarters of 2024, according to CompStak data. CBD retail transaction size, however, inched up slightly from an average of 3,696 square feet from Q1 to Q3 2023 to an average of 3,995 square feet from Q1 to Q3 2024.