Sparse space, high rents will continue to plague retailers in 2024

Available space is sparse and rents are rising — and neither is likely to change anytime soon.

Since 1999, new construction of retail space averaged more than 100 million square feet per year. In 2022, that number dropped to 82 million square feet. Last year, it collapsed to 46 million square feet. In its January Real Estate Data Update, commercial real estate analytics provider CoStar holds that new construction starts will continue to fall and rents will continue to rise in the United States.

 Since it began tracking such in all metropolitan statistical areas in 2007, CoStar states that it’s the lowest level it has ever reported—a trend that is not likely to be reversed this year.

“There’s very little space remaining available in under-construction retail projects, so supply pressure is unlikely to be a problem in 2024,” said Brandon Svec, CoStar’s national director of retail analytics. “That creates favorable conditions for retail landlords.”

Landlords who continue to expand are often buying, not building. Over the last few months, DLC Management Corp. spent $100 million on four existing open-air centers and raised institutional capital it says it will use to double the size of its portfolio by the end of 2006. 

In 2021, to quicken store buildouts and renovations, the Elmsford, N.Y.-based company established Renovo, its own general contracting business.

“Supply-and-demand metrics for retail space emerged over a long period of time and it’s taking a long time to heal itself,” said DLC founder and CEO Adam Ifshin. “Rents for spaces in prime retail locations that went for $30 a square foot are going up to $50 and $60.”

CoStar predicts that 2024 will see fewer substantial retail chain closures such as last year’s exit of Bed Bath & Beyond, which put more than 800 stores ranging from 20,000-to-30,000 square feet on the market.

“There’s an historic lack of 10,000-sq.-ft. spaces across the country,” Svec told Chain Store Age last November. “Five Below has been one company that’s been very active at tying up those spaces. And when you are looking for that junior anchor or mid-sized box space, there’s nothing out there.”