5Qs for CoStar’s Brandon Svec on the tension of expansion
According to a recent “Retail Market Dynamics” report on Q2 compiled by JLL, retail space construction activity continued to fall to 48.3 million sq. ft. Construction starts dropped by more than 50%, quarter over quarter, to 4.9 million sq. ft.
A CoStar chart in the report showed that the average time between when a space is vacated and when a new lease is signed for it is 7.1 months — the shortest period ever tracked by CoStar since it began examining lease signings nearly 20 years ago.
To find out what this means to an industry that needs more stores to make more money, Chain Store Age sat down with CoStar’s national director of analytics, Brandon Svec, who constantly keeps his fingers on the pulse of store expansion.
New construction is still pretty much something that happens most in the Sun Belt. Have significant closings like Big Lots and Joann opened up enough space for wide-scale brand expansions?
Yes. For spaces of 15,000 sq. ft. and up, you can find a decent supply. Over the past year, availability of spaces 25,000 sq. ft. went up by 20%. Ten-thousand-square-foot spaces rose by about 11%. But those space availabilities are still 10% fewer than they’ve been over the past 10 years. Barnes & Noble and TJX are still finding fewer options today than they have in the past five years.
What about smaller spaces — 2,500 sq. ft. and below?
Availabilities of those small spaces are 39% lower than they were in 2015. The market hasn’t loosened much of anything that’s 5,000 sq. ft. and below — and that’s where 90% of the demand is in the market. When you look at where consumers are spending dollars, it’s food and beverage, it’s medical, and those are the uses in those spaces. They’re hard spaces to find and that’s held back the leasing market. We’re seeing leasing at its slowest pace over the past four years.
So what are the Plan Bs?
Tertiary markets are where we can still make the numbers work. Lower cost land. A slightly easier entitlement process. The state we’re in now is one in which retailers are starting to understand that the typical occupancy costs we’ve enjoyed for the past decade are gone.
What are some of the tenets of the new game plan?
Get smarter with floor usage. How much merchandise do we need on the floor? Be less formatted or format-specific. Creep into different boxes. What you’re going to see is not a one-size-fits-all approach. It’s going to be a multi-pronged approach that’s going to be retailer-specific.
How did we end up in this situation?
Over the last decade developers have torn down 250 million sq. ft. of retail, and that 250 million sq. ft. has not been rebuilt. Creativity is going to be the name of the game from now on, because we don’t expect an uptick in retail real estate construction coming at any time in the next decade.
