Going, going, gone: Retail space is snapped up at a record pace
After more than a decade of minimal shopping center development--and still riding the tailwinds of the post-pandemic rise in sales--retail tenants are finding themselves in the unfamiliar position of competing for available space. That is, when they can find it.
The amount of available shopping center space has declined steadily over the past decade and is now hovering at historic lows. Demand for retail space has been broad-based, with availability declining across box sizes and regions. At the same time, dozens of large national retailers are pursuing significant store expansions as they brace Wall Street to expect thousands of planned future store openings.
Against a backdrop of scarce available retail space, intense competition among tenants vying for prime locations is now playing out across the United States. This has resulted in retailers paying higher rents, agreeing to pricier rent escalations, and jumping on spaces as soon as they can. Sometimes even before they become available.
For example, to keep up with its announced expansion plans, Dollar Tree recently acquired 170 former 99 Cents Only leases in bankruptcy court. When available shopping center spaces hit the market, they get leased up quickly. The average time from when a space becomes available to securing a tenant has declined to just 8-and-a-half months--the quickest pace recorded in over two decades.
Even more impressive than the record average pace of backfilling store space is the depth of the retail space market benefitting from the supply-demand imbalance present in today’s retail market. More than 80% of retail spaces listed on the market during the past year were leased within six months of becoming available, while 98% were leased within nine months. This is the most rapid pace on record and is more than double the average from the past decade.
Nearly half of all retail spaces have landed a tenant within just three months of listing over the past year, a level that has taken, on average, nine months to achieve over the past decade.
The landscape has shifted from landlords seeking tenants to tenants competing for space. Retailers can no longer rely on a passive approach to expansion, and today’s retail real estate sector is increasingly marked by fierce competition, creative leasing strategies and a tenant base willing to pay up for prime locations.