Laura Barr, who leads CBRE’s retail business across the Americas, sees a dilemma for the financially healthy, expansion-minded retailer.
“It’s incredibly tight across the U.S. particularly for any prime space,” Barr said during an interview. “Any ‘A’ mall is so competitive to get into, and new development has been heavily limited.”
High interest rates and other costs limit new development and make it riskier — and the most desirable areas of the country are already covered with projects, leaving little, if any, room for further development, she said.
According to statistics from CBRE, a leader in commercial real estate services and investment, the overall availability rate remained at 4.9 percent in the third quarter as store openings and expansions offset space returned from closures and consolidations. It was at 4.7 percent a few quarters ago, and seems to be holding steady.
Net absorption, the difference between the total square footage of space leased and the total square footage of space vacated, turned positive in the third quarter at 1.8 million square feet amid renewed demand. Construction completions increased to 5.1 million square feet in the third quarter, bringing the year-to-date total to 13.8 million square feet.
“Most projects began before financing costs increased and were supported by early tenant commitments,” CBRE said. “Speculative starts remained limited as developers prioritized well-located, necessity-based projects.”
Average asking rent increased by 0.4 percent quarter-over-quarter, and 1.8 percent year-over-year to $24.92 per square foot “as owners prioritized occupancy and tenant retention in a discriminating retailer environment.”
The lack of new development opportunities limiting expansion means real estate companies, retailers and brands can reallocate resources and shift efforts to other areas of their operations, such as improving the quality of the products and experiences they offer.
“When things are constrained, other opportunities for improvement are created,” said Barr, who is a member of the board of the ICSC.
Manhattan has become a particularly tough market to enter, according to a recent CBRE report. “Following the pandemic, the market was rife with vacancies and allowed new-to-market tenants to penetrate previously inaccessible or unaffordable locations,” the report indicates. “This initial phenomenon has waned due to improved leasing for the most sought-after availabilities and diminished supply in prime locations. Heightened competition for prime spaces has compelled new-to-market retailers to reorient their strategy. Now, new entrants to Manhattan have two options: consider next-tier areas where they can still attract the city’s unique affluent and youthful consumer base or accept higher rents for the remaining space.”
With space tight at premium centers and top commercial streets in prosperous communities, Barr sees retailers opening their eyes to other destinations that were ignored in the past.
“There is a major shift to convenience,” she said.
Certain retailers and brands, like Lululemon, will go into a grocery-anchored center or a power center, Barr said. “Investors are putting more thought towards place, as opposed to feeling they need to always be on a certain high street or in a certain centers. Far more brands are opening their aperture.”
It’s an opportunity to grow the footprint and customer base, rather than being a way to obtain lower real estate costs. “These would not necessarily be less expensive leases. It all has to do with sales volumes. A mall will have higher lease costs, but the sales there should be proportionately higher.”
Asked what types of retail are expanding more aggressively than others, Barr singled out health and wellness as “a major area of growth.” She also listed off-pricers, medical clinics, gaming, fitness studios, value stores and full-service casual dining.
Depending on the project, retailers might reduce the focus on dwell time and increase the focus on convenience. “For a number of years, dwell time has been and still is highly prioritized. It doesn’t need to be such a focus. Developers and retailers are looking at it differently, that it’s not the be all and end all, and that it doesn’t necessarily translate into productivity.”
Among other trends cited by Barr:
- Luxury brands seeking larger footprints.
- Food and beverage as great traffic drivers.
- The real estate industry suffers from a talent squeeze; 40 percent of the talent in commercial real estate reaches retirement age in the next 10 years.
- Projects generally want 10-year lease terms; brands push for shorter terms.
- Projects in transformation more prone to accepting shorter terms.
- The quality of analytics brands have for customer interactions online is much better for what they have for store interactions. “It’s a most interesting opportunity,” Barr said.
Roosevelt Field in Garden City, N.Y., is an “A” mall.
Courtesy image
