Simon Property Group Remains Optimistic About Consumer Spending in Retail

While there are signs in the broader economy that a consumer-led recession could be on the way, real estate investment trust Simon Property Group remains optimistic about its shopping, dining, entertainment and mixed-use destinations.

The firm has been telling analysts for well over a year that lower-income consumers have been under pressure, mostly due to inflation, while higher-income consumers have not slowed down their spending, David Simon, chairman, CEO and president of Simon Property Group, said Monday (Aug. 5) during the company’s quarterly earnings call.

The company has not seen any impact on higher-end consumers, who remain “in a good spot,” and it expects the lower-end consumers to resume some discretionary spending as inflation eases, Simon said.

For those reasons, he added, “We’re still pretty sanguine about it.”

“In summary, I think we’re going to cycle more positive in the lower-end consumer, and I think the higher-end consumer is ‘steady as she goes’ currently,” Simon said.

Simon made these remarks while saying that Simon Property Group saw increases in leasing volumes, occupancy gains, shopper traffic and retail sales volume during the second quarter.

In its U.S. malls and premium outlets, occupancy stood at 95.6% on June 30, up from 94.7% a year earlier, and reported retailer sales per square foot was $741 for the trailing 12 months ended June 30, according to a Monday earnings release.

These gains resulted in the highest level of real estate net operating income (NOI) for the second quarter in the company’s history, Simon said during the call.

“We have a number of retailers that are in really good financial standing, and I think they take a longer view, just like we do,” Simon said. “Not everyone, but I would tell you the majority of who we’re doing new business with is definitely taking a longer-term view.”

“They’re looking to gain sales and market share as well,” he added. “So, we’re certainly not on the defensive due to kind of the turmoil over the last few weeks. If anything, we’ll step up our investment activity — not foolishly, I mean, we’ll do it like we do everything else, but we don’t see it as a reason to rein in at this point.”