The enduring durability of retail real estate
Retail real estate has always been shaped by shifting consumer habits and economic cycles. In the 1970s, department store–anchored malls offered a one-stop shopping experience that resonated with a growing suburban population. The trend accelerated through the 1980s, as malls claimed prime real estate across the country. But by the 1990s, the landscape began to shift again with the rapid rise of category killers like Lowe’s and Home Depot, which redefined how — and where — Americans shopped.
But while the retail landscape continued to adapt through the 1990s and early 2000s, a surprising trend emerged: a sharp slowdown in new development. Despite significant population growth over the past two decades, retail construction has lagged behind.
In the early 2000s, the United States averaged around 300 million sq. ft. of new retail construction annually. By contrast, only about 42 million sq. ft. of retail space was delivered last year, while the U.S. population has grown by more than 46 million people since 2005. The old adage that “retail follows rooftops” has not held true in recent years.
Rising Demand Meets Limited Supply
Historically low vacancy rates are leaving retailers eager to expand with few available options. Strong leasing demand and rising lease rates are now creating urgency for new development. This supply-demand imbalance is fueling a new wave of retailer activity and interest in strategic development.
Large national retailers like Walmart and Target have announced plans to open new stores—a positive indicator that often signals the potential for new developments, as these anchors are needed to spur additional growth.
Value retailers like TJX and Ross continue to expand aggressively. Food and beverage brands like Chipotle and Dutch Bros are on the hunt for hundreds of new locations.
Creative Site Strategies
An emerging trend among food and beverage brands involves targeting existing freestanding QSR sites—particularly those already approved for drive-thru lanes—as a faster, more cost-effective way to secure prime real estate. These properties not only offer favorable rents in high-traffic areas, but also come with existing drive-thru entitlements, saving valuable time and resources during redevelopment.
The cost of new construction is driving up shop space rents to $40 to $60 per square foot, but the sales our clients are producing in these locations justify the costs. And the availability of freestanding space is on the rise. The standard rule of five-to-one parking spaces is in the past. It used to be that a Lowe’s store needed to have 600 spaces. Now that’s down to 350, freeing up room for food and beverage and other new uses to open up in well-located, traffic-heavy locations.
Investors Are Taking Notice
For years, retail real estate dwelled at the bottom of the pecking order for institutional investors. That’s no longer the case. The industrial market peaked, multifamily has softened, office space was abandoned, and investors began to embrace good retail real estate property because of its durability. After nearly 20 years of constrained growth, retail development is finally rebounding, with a growing pipeline of projects and a notable uptick in new deliveries and starts across major metros.
Good retail estate is always evolving. It’s not a commodity. The side of the street matters. So does what surrounds it, how it looks, and how it makes people feel. It’s continually reimagined to reflect new lifestyles, preferences, and patterns. And when it’s done right, good retail real estate will always be occupied.
Chris Maguire is the Chairman and CEO of SRS Real Estate Partners.
