JLL: Small spaces dominate retail leases in Q1

Small spaces are in demand in the retail sector, fueled by expanding quick-serve and fast-casual restaurant chains. 

Spaces of less than 2,500 sq. ft. accounted for more than two-thirds of executed leases in the retail sector during the first quarter, according to JLL Retail’s Q1 Outlook. These spaces also comprised the greatest sq. ft. signed during the quarter. (The JLL study noted that quick-service and fast-casual restaurants, which reported almost 2,000 potential openings in 2024, generally fall within the small-size category.)

Conversely, big-box spaces of more than 50,000 sq. ft. comprised less than 1% of all deals and only 5.6% of space signed for. Major deals in this category include Dick’s Sporting Goods, BJ’s Wholesale Club, Bosse Pickleball and Chicken N Pickle. 

In other report findings, leasing activity during the first quarter pulled back somewhat from the previous quarter, largely because of a frustrating lack of available space in desirable locations. The lion’s share of demand is still coming from food and beverage tenants (especially QSRs) discounters and experiential tenants. 

Retail availability is hovering near record lows, putting a ceiling on leasing activity. There are just over 50 million sq. ft. of retail space under construction, with over 70% pre-leased. Given that construction starts remain low, limited supply will remain a central issue for retail in coming quarters.

Additional highlights from JLL Retail’s Q1 Outlook are below.

•There were 435 new mall leases signed in the first quarter, 43.4% of which were for lifestyle centers, which continue to show solid demand. The percent of available lifestyle center space leased over the last year, at 34.6%, is considerably higher than for other mall types. 

•Retailers continue to focus on Class A malls. The demand for Class A space continues, with availability down to 3.6% — the lowest level since 2018. Class B and Class C malls have not seen the same surge in demand, and have much higher availability of 6.8% and 10.2%, respectively. 

•Sun Belt market rent growth continues to trend higher than metros in the Northeast and West, thanks to solid population gains and buying-power growth. Metros carrying significant proportions of older suburban properties and those with stagnant population totals underperform the U.S. average.

•Shopping center absorption totaled a moderate 0.4 million square feet during the first quarter. However, leasing rates remain strong with community centers showing 30.4% of available space leased over the last year, neighborhood centers totaling 35% and strip centers showing a robust 48.7%, JLL said. 

•Macy’s is planning 150 store closures over the next three years, which will put additional pressure on mall performance. Recent bankruptcy announcements from The Body Shop and Express will also weigh on mall occupancy.

•Quick-service chains such as McDonald’s, Chipotle, WingStop and Dutch Bros account for the majority of potential restaurant openings in 2024.