It’s Finally Happening: Millions of Retail Square Feet Under Construction

Thanks to high demand from expanding retailers, millions of square feet of new retail space is under construction, and plenty more is on the way in 2024. However, challenges remain, including land availability, construction costs and zoning issues.

In the fourth quarter, 11.1 million square feet of new retail space was under construction, according to JLL’s United States Retail Outlook Q4 2023, released this week. The space anticipated for delivery this year tops 63 million square feet, though much of that is pre-leased, freestanding, build-to-suit. Available shopping center space slated for 2024 delivery totals 5.7 million square feet. More than one-third of that is for neighborhood centers.

Much of the activity is in the Sunbelt, where the population is booming. For example, Thompson Thrift last month announced the acquisition of 20 acres in Maricopa County, Arizona, for the development of South Bridge Marketplace. Kicking off in April, Phase 1 will be a 130,000-square-foot anchor. The 60,000-square-foot Phase 2 — a grocery store and 10,000 square feet of additional retail and restaurant space — will break ground near the end of the year. The development is in a growth corridor between Tucson and Phoenix where many multifamily and single-family homes are under construction.

Meanwhile, Regency Center ended launched just over $250 million of new-construction starts in 2023, bringing its total underway to $468 million. “This is the highest level of starts in a single year for Regency in nearly two decades,” said West region president and chief investment officer Nick Wibbenmeyer. Among the company’s fourth-quarter starts was the $23 million redevelopment of Avenida Biscayne in South Florida, pictured at top. The main reason Regency is building so much right now is that the landlord is reclaiming of big-box anchor stores, enabling large-scale rearrangements. “We have several examples of those within our in-process redevelopment pipeline today,” he said, citing Baptist Health at Jacksonville, Florida’s Mandarin Landing; Sprouts Farmers Market at Long Beach, California’s Circle Marina Center; REI at Beaverton, Oregon’s Walker Center; and Publix at Buckhead Landing, north of Atlanta.”

Regency wants to start more than $1 billion of development and redevelopment projects over the next five years, but it won’t be easy, he added. Getting a new development across the finish line requires significant pre-leasing and pre-planning. “It's difficult to find land that is priced appropriately [and] tenants that want to pay enough rent to make sense for that land cost and that construction cost. It is finding needles in a haystack.”

Federal has its own redevelopment plans. The REIT just received approval for additional residential and ground-floor retail at its Bala Cynwyd on City Avenue project in Philadelphia. The center’s expansive tenant roster — including LA Fitness, a full-service grocer, restaurants and necessity services — often has been cited as the reason residents have chosen the property’s existing residential units, said Federal CEO Donald Wood. The approved new development will add another 217 residential units atop 16,000 square-feet of retail to replace a former Lord & Taylor building. Construction will begin in the spring and deliver by summer 2026. “Strong supply and demand dynamics in this closed-in part of Philadelphia’s main line, along with construction costs moderating, means that we’re able to build,” Wood said.

Phillips Edison & Co. wants to spend $40 million to $50 million on new development in 2024: adding 4,000- to 6,000-square-foot pads in the parking lots of 12 to 15 existing properties. The company expects a return of 9% to 12% on each $2 million to $3 million investment. It’s hard to develop anything more than smaller projects with existing headwinds, said CEO Jeff Edison. “This is hand-to-hand combat. Buying specific pieces of land, getting the zoning and the other entitlements, getting the store built and leased and doing that in $1 million to $5 million chunks — it’s a difficult process and that’s why the stuff we’re working on today is two, three years out and keeping the pipeline full and going.”

Speaking of: Where Rents Grew the Most in 2023

The average U.S. retail asking rent increased 0.8% from the third quarter to the fourth and 2.4% year over year to $23.76 per square foot, according to CBRE. Both figures were above their 10-year averages. Neighborhood, community and strip centers posted 2.4% year-over-year rent growth, lifestyle centers and malls 2.2% and power center 1.8%.

Mardi Gras Up Close

Shoppers at two CBL malls now can look online to see what’s available there in real time before making the drive. The REIT has launched Inventory Insider at CoolSprings Galleria in Nashville and Hamilton Place in Chattanooga. Powered by Adeptmind, Inventory Insider displays, in one spot within the mall’s website, the inventory in stock throughout the mall. Website visitors can access the feature on each website’s Products tab. “The way people shop has changed significantly over the last several years with advanced research on local product availability being a key part of the shopping experience,” said CBL CEO Stephen Lebovitz. “Inventory Insider enables us to add this capability to our websites and gives our customers a seamless way to browse the entire mall online.”

More from C+CT on Adeptmind

Too Cold to Shop?

Consumers put the brakes on spending in January, according to the U.S. Census Bureau. Excluding gas and auto, retail and food service sales shrank 0.5% from the previous month but rose 2.2% year over year. This is the first decrease since March 2023 and slowest year-over-year increase since the drop in May 2020. These figures show that spending lagged the pace of price increases, based on Tuesday’s inflation report, according to ICSC research manager Matthew Panfel. “Although sales had been expected to decrease slightly from the robust holiday season spending, today’s report shows that in spite of a healthy labor market, elevated interest rates and stubbornly high inflation are taking a toll to some extent on consumers,” he said. “While the health of the consumer is something to keep an eye on, lower temperatures keeping consumers home likely contributed to the decline, too, so it is possible that as the weather improves, consumers could catch up on spending plans delayed by the cold.”