5 Markets Where New Construction Could Actually Work in 2024
Not many markets can command the rents to justify the high cost of new construction, redevelopment and expansion. But these five have strong fundamentals that could generate outsize growth in the coming year, according to CBRE’s U.S. Real Estate Market Outlook 2024 report.
Orlando
3.5% and shrinking; Orlando's retail vacancy is decreasing fast. The market gobbled up more than 2 million square feet in the first three quarters of 2023, the most of any U.S. market.
Japanese lifestyle brand Miniso opened its 100th U.S. store at The Florida Mall in Orlando in December.
Charlotte, North Carolina
Despite its allure, a mere 3.2% vacancy rate leaves new businesses in the city scrambling for scarce retail and restaurant space.
Denver
Hot on Charlotte’s heels, Denver’s booming economy and vibrant food-and-beverage scene are luring innovative restaurant concepts eager to put their stamp on the Mile High City.
San Francisco
According to CBRE, tech jobs are expanding across Greater San Francisco, which also encompasses Marin and San Mateo counties. That’s causing a major drop in retail vacancy across the broader market, despite downtown’s woes.
Orange County, California
This demographic sweet spot is drawing big-name brands, setting the stage for the second-fastest rent surge in history for this market in 2024.
Demand for Existing Space Coming from Retailers That Used to Build Their Own Stores
High construction costs are driving discounters, fast-food operators, grocery chains and other retailers that usually build their own stores instead to consider leasing existing space in multitenant marketplaces. Such retailers’ desire to maintain control over design, layout and brand experience has hit a wall, CBRE head of retail research for the Americas Brandon Isner said during a webinar about CBRE’s U.S. Real Estate Market Outlook 2024.
Though consumer spending and occupancy levels justify new stores and centers, construction costs remain restrictive, he said, pointing out that developers are getting construction cost quotes of $300 per square foot for junior boxes to $500 per square foot for multitenant pads. Also in the report, CBRE’s Cost Consultancy Group reported that retail construction costs rose 6.5% in 2023 and are expected to increase further in 2024, albeit at a slower rate.
“REITs have had a notable amount of interest in their existing available space by retailers that normally do their own ground-up builds,” Isner said, “so multitenant retail assets might see new demand from that segment in 2024 and beyond.” The trend benefits landlord coffers and provides retailers a cheaper, more sustainable growth outlet, he said. The historically low level of new construction, driven by supply-side management, has allowed demand to catch up organically, Isner noted. Landlords that get space back can today redesign it and resize it to meet current demand trends.
Avison Young Buys Madison Marquette’s Retail Division
Avison Young on Jan. 1 acquired Madison Marquette’s retail platform of leasing, property management and specialty leasing services for more than 6.1 million square feet of assets. The move adds 37 team members and a new market, Seattle, to Avison Young's existing presence in Los Angeles, Philadelphia, Atlanta, New Jersey, Indiana, Maryland and Virginia. Avison Young acquired Madison Marquette’s office and industrial property management, agency leasing and project management service lines in 2022.
Madison Marquette employees who have moved into Avison Young leadership positions are Gavin Farnam, leading property management and leasing teams as principal and managing director of U.S. retail services; Heather Almond, focusing on property management and marketing strategy for the portfolio as principal and senior director U.S. retail services; Meghann Martindale, leading trend analysis, forecasting and insights for the U.S. market intelligence team as principal and director of market intelligence for retail; Steve Toppel, serving as principal of retail leasing; and David Brown, serving as principal of specialty leasing.
5 More Malls Bound for Transformation, Including 2 with Workforce or Affordable Housing
Mall reinventions keep stacking up:
Miami: Bal Harbour Shops will become the centerpiece of a mixed-use complex with 600 high-end residential units, 40% of which are slated for workforce housing and 60% of which are to be luxury housing. The complex also will include a 70-room upscale hotel and 45,700 square feet of additional retail space. Florida’s new Live Local Act makes the project feasible for owner Whitman Family Development. This bipartisan bill lets developers streamline approvals and build higher if the projects are mixed-use and have at least 40% attainable housing. The luxury open-air center — home to renowned brands like Chanel, Gucci and Valentino — is undergoing a $550 million retail expansion that will add about 250,000 square feet, nearly doubling the retail space.
White Plains, New York: Enclosed mall Galleria at White Plains, long struggling, will become District Galleria. Aareal bank, Cappelli Organization, Pacific Retail Capital Partners and SL Green Realty Corp. will replace much of the 43-year-old mall with 3,200 apartments. Notably, 384 of these units will be designated as affordable, aligning with the city's housing regulations. Nearly half the project will be dedicated to open space, including a quarter-mile green promenade, pet playgrounds and pocket parks. The project’s website said “retail, fitness, a neighborhood grocery store and gourmet dining” will elevate the residents’ experience.
District Galleria
Lombard, Illinois: At the 1960s-era Yorktown Center, Pacific Retail Capital Partners and Synergy Construction will demolish the former Carson’s department store, put up a multifamily building, create a large park and modify peripheral buildings to create a seamless connection to the residential units. Construction on the two-phase project began in spring, and Phase 1’s scheduled spring 2025 completion depends on a final planning review by the village of Lombard.
Columbus, Indiana: The former Fair Oaks Mall’s $92 million transformation into NexusPark — a health, wellness and recreation center operated by the city, its parks department and healthcare provider Columbus Regional Health — will deliver in April. The property will house basketball, football and pickleball courts; retail; restaurants; and health care clinics.
Topeka, Kansas: Advisors Excel acquired the 992,000-square-foot West Ridge Mall and will convert it into a lifestyle property with dining, event, entertainment, green and office space, including the company’s own headquarters. The mall opened in 1988, and business and occupancy have declined steadily over the past decade. Macy’s closed in 2012 and Sears in 2018. Various management companies tried to keep the property alive, but by 2021, the occupancy rate had dropped to 39%. “Contrary to popular belief, the American mall is not dead,” said Advisors Excel co-founder Cody Foster. “It simply needs a face-lift, which is our exact mission with this project. Developers are looking to shift shopping centers to a multipurpose lifestyle hub, incorporating leisure offerings and getting people in the door again, whether they are consumers, tenants or professionals.”
Advisors Excel co-founders Cody Foster and David Callahan at West Ridge Mall
Shoppers Embraced M-Commerce and Curbside Pickup During the Holidays
Holiday shopping on mobile devices exceeded desktop-based e-commerce in 2023 for the first time, including nearly two-thirds of what was purchased on Christmas Day. According to Adobe Analytics, 51.1% of online sales from Nov. 1 through Dec. 31 and 63% of online sales on Christmas Day came from mobile devices, a 4.9% year-over-year increase that largely contributed to the $222.1 billion in online holiday sales. Many of those online orders relied on curbside pickup at stores. This holiday season, 18.4% of online orders used curbside pickup, up from 21% in 2022. The peak came during the Dec. 22-to- 23 span, when 36.8% of orders were fulfilled this way, indicating that shoppers value the speed and ease especially for last-minute gifting.
In-Store Purchases Are Less Likely to Get Returned
Online shoppers were twice as likely as brick-and-mortar counterparts to return goods in 2023, according to Mastercard Economics Institute’s Economic Outlook 2024, an analysis of millions of transactions across 10 countries. While returns of online purchases climbed in 2023 compared with 2019, returns of in-store purchases remained relatively flat. This suggests that the ease and convenience of online shopping comes with a flip side, a higher likelihood of buyers sending items back. Among the countries in which residents were surveyed, the rates of returns of online purchases were highest in Germany, Spain and the U.K. Across the Atlantic, U.S. consumers followed the global trend: U.S. residents returned 10.4% of the goods they purchased online, nearly double the rate for in-store purchases. Canada had a remarkably high rate of returns on in-store purchases, 9% compared with the U.S.’s 5%.
McKeehan Expands Role at Big V Property Group
Big V Property Group named Kenton McKeehan chief investment officer. McKeehan, who joined the company as chief revenue officer in August 2021, will manage revenue operations, overall investment strategy and the firm’s initiative to establish partnerships with institutional capital providers. The firm also recently named Eric Zimmermann chief acquisitions officer.
By Brannon Boswell
Executive Editor, Commerce + Communities Today