Retail vacancy rates are at a historic low — so why aren’t developers building more stores?
Retail vacancy rates are at a historic low — so why aren’t developers building more stores?
The vacancy rate among retail spaces nationwide is 4.1%, according to a new report out Thursday morning from the commercial real estate firm JLL. That’s near a historic low for the retail sector, and it’s been stuck there for awhile.
Despite low vacancy and high demand, construction of new retail space has been sluggish too.
There’s pretty strong demand for retail space, so rents have been climbing, according to JLL’s Keisha Virtue. But new retail — in desirable locations — is still pretty expensive to build.
“Material costs, labor costs, land costs all those factor in,” she said.
The problem is developers can likely make more money right now building other kinds of properties, per Brandon Svec, the national director of U.S. retail analytics for the CoStar Group.
“If I’m going to have a higher return by building multifamily, by building medical office, that’s where I’m going to going to choose to allocate my time and resources,” he said.
A bunch of store closures might free up more retail space soon — think Walgreens, Party City and Macy’s. That’s happening, Svec noted, because there were fewer closures post-pandemic lockdowns, as cash-flush consumers flocked back to stores.
“Certain businesses that maybe had business models that were lacking, or store fleets that that were underperforming, were able to mask that because of this large overall boost in consumption,” he said.
Now, consumers have gotten a little more discerning with their money, so more chains are closing locations. And that means that retailers that are growing are working with what they can find, per Anjee Solanki, national director of retail services and practice groups at Colliers.
“I think the retailers are getting much more sophisticated on their store operations, allowing them to be more nimble in going larger or going smaller and adapting to what’s available in the marketplace,” she said.
Meaning you might soon see a Five Below or Dollar General in a former Walgreens.
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