Happy Saturday —

Three reports landed this week that matter for anyone holding strip retail: June retail sales, June CPI, and a bond market that spent the week arguing with itself. The headlines on all three were a little misleading, so let's walk through what the data actually says and what it means for your rent roll and your financing math.

The Census Bureau's June retail sales report landed Thursday, and the number making the rounds was a sleepy +0.2%. Total retail and food-services sales came in at $768.6 billion. On its face: the consumer stalled.

Except the thing dragging that headline down was gasoline. Receipts at gas stations fell more than 5% on the month — because gas got cheaper, not because anyone stopped driving. Retail sales are measured in dollars, not gallons, so a drop in pump prices shows up as a drop in "sales" even when volume holds steady.

Back that out and the picture flips:

Advisor Perspectives' breakdown of the category detail shows the advance was broad, not concentrated in one or two lines. That's the tell. When a gain shows up across most categories rather than in a single outlier, it's demand, not noise.

The honest read isn't "the consumer stalled." It's "the consumer kept spending, and cheaper fuel freed up the wallet to do it." Every dollar not spent at the pump is a dollar available to move somewhere else — including the nail salon, the taco spot, and the pet store in your center.

Worth keeping in your pocket: when a buyer waves the +0.2% headline at you as evidence the market's softening, the number under the number is the one that actually shows up in tenant sales.

Now follow the dollars into the categories that fill a modern strip center.

Food services and drinking places — restaurants, bars, the quick-serve pad site — rose in June and sit 3.8% ahead of a year ago. That's the only services line in the entire retail report, and it's the exact tenant type leasing unanchored strip space right now.

This matters more than it used to. The strip tenant mix has tilted hard over the past decade toward food, service, and experience: restaurants, fitness, medical, beauty, pet. The common thread is that none of it can be clicked and shipped. That's the structural reason well-located strip has been the quiet outperformer of this cycle while other retail formats absorbed the e-commerce hit — and it's why a growing national restaurant-spending number is a direct read on your rent roll's ability to absorb renewals and modest bumps.

One practical move this week: pull your tenants' sales reporting where your leases require it. Most owners have the clause and never exercise it. If your tenants' comps are tracking the national food-services trend, you have two things you didn't have before — leverage on renewal terms, and a materially cleaner story when you take the center to market.

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So the consumer's fine. What about the cost of money?

Two days before the retail report, June inflation came in — and it cooled hard. CPI actually fell 0.4% on the month, the largest one-month decline since April 2020, driven by the same energy plunge that dented the retail headline. Year over year, inflation eased to 3.5%, below the 3.8% forecasters expected and down from 4.2% the prior month. Core CPI, which strips out food and energy, was flat on the month and up 2.6% annually.

That last number is the one to watch. Headline inflation moving on energy prices is volatile and reverses; core moving is what changes the Fed's mind.

The bond market spent the week processing it. The 10-year Treasury had spiked to a two-month high of 4.62% on Monday, then settled back to roughly 4.55% by Friday as the soft print pulled yields down. Per CNBC's read of the market reaction, futures trimmed the odds of a September hike to about 63% from 75% — trimmed, not erased. The Fed is still widely expected to hold at this month's meeting. This is a market that got one good inflation report and isn't yet convinced.

Now run the math the way an owner should. Take the 4.55% 10-year as your base rate. Add a retail lender spread — call it 175 to 225 basis points in the current market — and you're pricing acquisition or refinance debt roughly in the low-to-mid 6s. That's the number that sets your debt-service coverage, and DCR is what sets your cash-on-cash.

The sensitivity is worth internalizing: on a typical leveraged strip deal, every 25 basis points on the 10-year moves your coverage ratio enough to matter at the margin. A softer inflation trend that keeps the 10-year from running back toward 4.6% and beyond is precisely what protects that math between now and your next loan conversation. If you have a maturity inside the next 18 months, this is a good window to model scenarios rather than assume the direction is settled.

Don't let the flat headline fool you — or your buyers. The consumer kept spending, cheaper gas freed up the wallet, restaurant and service demand (your tenant base) is still climbing, and the financing backdrop got a little friendlier without becoming predictable.

That combination is a good week for strip retail.

If you own centers in San Antonio, Austin, or the Valley and want to know what any of this means for your rent roll specifically, just reply to this email. That's the conversation I have every day.

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