By Deb Carlson, Director
The headlines shaping the retail landscape around the Twin Cities lately have seemed consistently negative. There are bankruptcies, selloffs, and other closures, but that has been offset to some degree by pockets of positive activity.
Retailers are filling up big box spaces with existing formats and new concepts. National concepts with limited or no presence in the Twin Cities are seeking out opportunities. As we’ve reported, top locations are leasing quickly and at rents that can be challenging even for successful businesses to pay. These are the signs of a healthy retail market, not one in decline.
But looking closely, you’ll see another trend; there is very little ground-up construction of new retail spaces on the docket for the foreseeable future. In January 2018, Cushman & Wakefield reported just 474,000 square feet (sf) of retail space under construction. To put that into perspective, our retail universe in the Twin Cities is more than 68 million sf. That should concern retail tenants, and should be viewed as an opportunity for owners of retail space.
While land availability and rising land prices have certainly been factors slowing new projects, there has also been reticence from landlords to build new in the post-Amazon landscape. Whether that mindset is justified is a question worth asking.
As we’ve reported extensively in our biannual Compass report, new shopping center spaces have leased quickly in our market, especially those bringing in retailers in the value niche. Negotiations have been competitive for prime spaces such as the new HyVee-anchored Central Park Commons in Eagan, which is now almost completely leased and consistently busy.
Without new construction of projects to rival the Eagan development and similar new projects, the competition for existing space will heat up even more. With a very limited number of spaces to choose from, many landlords are leveraging that lack of supply and raising rents, potentially squeezing out smaller, local retailers or even jeopardize existing stores when their rents increase.
So how could new retail construction help? For one, it would create functional, efficient space in high-quality locations, which will attract top retailers. That may mean new retailers to the market, or an existing national retailer expanding into a new market here, or one with a nearby location relocating and opening up their existing space for another.
Based on leasing velocity at other new-construction projects, I would expect any well-located shopping center development would have the ability to pre-lease to national and regional credit tenants, while opening up new opportunities for the small shop retailers, both national and local. With enough supply, pressure on rates could level off, and a better diversity of options would thrive in the retail market.
Deb Carlson is a director in the Minneapolis-St. Paul office of Cushman & Wakefield. She is a dynamic commercial real estate professional with a long track record representing both tenants and landlords in their real estate transactions, including an extensive background working with some of the most successful supermarket operators in the Twin Cities region.