The Consumer Spending Squeeze: What Retail Property Owners Need to Watch

Two new data points landed this month, and together they tell an important story for anyone who owns a shopping center or a net lease retail property. American households are feeling more financial strain, and that pressure is starting to show up at the cash register, especially in restaurants. Here’s what the numbers say and what they mean for your tenants.

Households Are Feeling the Pinch

The Federal Reserve Bank of New York’s latest consumer survey, conducted through May, found that worries about personal finances have climbed to their highest level in nearly four years. The share of consumers who say their household finances are “much worse off” than a year ago hit 13.3%. Looking ahead, 36% expect things to get worse over the coming year, while fewer than 23% expect improvement.

What’s driving the anxiety? Cost pressure across the board. Consumers expect prices to keep climbing over the next year:

Gas prices up 5% (on top of a 40%-plus surge since the start of the war in Iran)
Food up 5.8%
Rent up 7.4%
Medical care up 8.9%
Overall household spending up 5%

Meanwhile, expected income growth held flat at 2.8%. When spending is projected to rise 5% but income only grows 2.8%, something has to give. For retail tenants, that gap is the whole ballgame.

One bright spot worth noting: consumers expect home prices to rise 3.5% in the coming year, the most optimistic reading since mid-2022, with the strongest expectations in the West and Midwest. Real estate is still seen as a store of value even in an inflationary environment.

Restaurants Are Feeling It First

Restaurants are often the first place consumers cut back when budgets tighten, which makes them an early warning system for retail health. The National Restaurant Association’s latest index came in at 99.8 for April, below the 100 mark that separates growth from contraction. The index has been flat or declining since the start of the year.

The traffic numbers are the real story. Nearly half of operators (49%) reported lower foot traffic in April compared to March. Even more telling, April marked the 14th time in 15 months that restaurateurs reported an overall net decline in customer traffic.

But here’s the nuance that matters for net lease investors: even with fewer customers walking in, 48% of operators said same-store sales actually rose from a year earlier. In other words, people are visiting less often but spending more per visit as prices climb. The strongest concepts are holding their revenue even as the broader category softens.

What This Means for Your Tenants

This is where it pays to understand the difference between tenants, not just sectors. The consumer squeeze does not hit every retail business equally.

Value-oriented concepts win. When budgets tighten, consumers trade down, not out. Dollar stores, discount grocers, and value-focused QSR brands often gain traffic in exactly this environment. A Dollar General lease looks even more attractive when households are pinching pennies, because that’s precisely when more shoppers walk through the door.

Drive-thru QSR stays resilient. Quick-service restaurants with strong drive-thru operations and value menus continue to perform. A well-located Taco Bell or similar value QSR is built for a cost-conscious consumer. The same-store sales data backs this up, with the strongest brands maintaining revenue despite category-wide traffic declines.

Watch the capital expenditure signal. Despite all the pessimism, 54% of restaurant operators said they plan to spend on equipment, expansion, or remodeling in the next six months, the 13th straight month of majority capex plans. Operators who are investing in their locations are operators who intend to stay and renew. That’s a quiet but meaningful positive for landlords.

The Investor Takeaway

A softening consumer is not bad news for every net lease owner. It’s a sorting mechanism that rewards the right tenants and punishes the weak ones. If you own a property leased to a value-oriented, recession-resistant tenant, this environment actually strengthens your position. If you own a property leased to a discretionary, traffic-dependent concept, now is the time to pay close attention to that tenant’s health.

Current cap rate ranges across QSR, dollar stores, and every other retail sector are available on our NNN Cap Rate tracker, updated monthly.

Not sure how your tenant stacks up in this environment? Request a free Broker Opinion of Value and we’ll give you an honest read on your property’s position.