Quality Retail Space Scarce for 2010

Judging by attendance at ICSC conventions this past year in Las Vegas, San Diego and New York, there are very few new retail developments on the boards for 2010. A scarcity of high-quality retail and restaurant space has been evident in recent years, and it will not be relieved by new construction in 2010.

Many retail centers that were in the early stages of development have been put on hold due to a lack of financing and tenants. Most notable is the absence of national retail brand anchor tenants, which typically drive shopping center development and provide the guarantees developers need to obtain financing.

Retail and restaurant companies in expansion mode often ask about potential locations. In many regions, available inventory consists of second-generation space that has come onto the market as a result of business failures. Most of those failures will be written off as victims of adverse economic conditions. But, it’s safe to say that poor quality sites contributed significantly to the tenants’ demise. Many businesses were in locations that would have under-performed even in a bustling economy. I can’t recommend those locations to my clients.

For a couple of years now, there has been a notable undersupply of quality retail space. Without new retail development, there is no relief of pent-up demand. What does it mean for retailers and restaurateurs as they plan expansion for 2010 and 2011? Is an increase in prices of the available sites likely? It looks that way to me.

Due to the economy, we’ve seen a softening in asking rents and purchase prices over the past year or so. But, I’m concerned the lack of new product will trigger higher prices this year. Tenants returning to expansion mode will begin to compete for the quality locations. I don’t believe this return to expansion mode will be sudden. Most tenants will test the waters cautiously. We’ll closely monitor the situation, so please stay in touch.