Retail real estate running low as construction dries up
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Retail landlords are running low on available space despite a recent spate of high-profile store closures.
Why it matters: The real estate sector is taking major bankruptcies and digital disruption in stride, while rising interest rates are limiting new construction.
By the numbers: In the third quarter, the amount of retail space available for lease plunged to an all-time low since CoStar Group began tracking the figures in 2007, says Brandon Svec, director of retail analytics.
- That was down by 0.13 percentage points over the last year and down 1.5 points over the past three years.
The big picture: Several factors are playing into the decline, according to CoStar:
- Nontraditional tenants are snapping up storefronts, including medical services, fitness studios and grocery stores.
- Construction of new space has dwindled to its lowest point in decades, and rising interest rates are making it increasingly cost prohibitive.
- Some 140 million square feet of retail space has been demolished in the last decade.
The intrigue: This year's demise of Bed Bath & Beyond and the bankruptcies of other retailers, like Party City and David's Bridal, haven't made a big dent on the retail real estate market.
- Retailers have announced 1,070 net new store openings this year — a figure that includes the liquidation of Bed Bath & Beyond — according to Coresight Research's Oct. 6 report.
- Recent expansion announcements include Toys R Us eying 24 new locations and Macy's planning 30 new small-format stores.
- "Office is in the crosshairs," Kimco Realty CEO Conor Flynn told the Wall Street Journal recently. "But retail is outperforming."
How it works: CoStar defines "available" space as including vacant properties, "currently occupied but soon to be vacant space," space that's being marketed for sublease and under-construction space that's available to rent, Svec said in an email.
What we're watching: Retail construction is unlikely to pick up anytime soon as interest rates keep investors away.
Go deeper: U.S. office vacancy rate hits all-time high
