4 — August 2024 — Retail Development Reimagined — M id A tlantic Real Estate Journal
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R etail D evelopment R eimagined
By Jim Tancredi and Joseph Latina, SIOR, LMT Commercial Realty, LLC/CORFAC Int’l. Rising construction costs prompt shifts in retail real estate
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expand or establish their pres- ence. Existing retail spaces and shopping centers demand much lower rents and pur- chase prices, especially when new construction rents are starting in the $35 psf range and can be as high as $60 psf in our local market. Despite their appeal, the limited availability of existing space is creating de- mand that the market is strug- gling to meet: Current retail vacancy rates are at a 10-year low, with some markets as low as 5 percent vacancy. As businesses face a short- age of second-generation
space, some tenants are com- pelled to consider new con- struction, despite the finan - cial challenges. In response, landlords and developers are adopting value engineering techniques to help control costs, paying closer attention to the cost of specific building materials and at times substi- tuting lower-cost alternatives. This approach could translate into rental rate savings of up to $2.50 psf for some tenants. Although the savings might appear minimal, it adds up considerably over a five- or 10-year lease term.
This scenario is placing pres- sure on both tenants and land- lords. Tenants face the tough decision of either stretching their budgets to afford new construction or settling for less- than-ideal second-generation space. On the other hand, new construction landlords must balance the risk of prolonged vacancies against the potential for lower rental income. This balancing act is making extensive lease negotiations much more common, with outcomes heavily influenced by broader economic indicators such as interest rates, infla - tion and consumer spending. Lower inflation could trigger increased consumer spending, thereby increasing retailers’ sales and cash flows. Like- wise, a reduction in interest rates could reduce developers’ carrying costs. These factors would certainly ease some of the pressures, aligning ten- ant capabilities with landlord expectations more closely. Until the market experi- ence some impending shifts, businesses and developers alike will continue to seek innovative ways to mitigate costs and optimize investment returns. As we watch these trends unfold, the resilience and adaptability of the retail market will undoubtedly be tested, shaping the strategies and structures of retail real estate for years to come. Jim Tancredi is principal and Joseph Latina, SIOR, is managing principal at LMT Commercial Realty/ CORFAC International. MAREJ Irgang Group inks new leases at Union Lake Crossing MILLVILLE, NJ — Irgang Group announced signings of new leases at Union Lake Crossing in Millville. Bath & Body Works is relo- cating to a 4,400 s/f space, with Mario Brunelli and Chelsea Reizner of R.J. Brunelli & Co. representing the landlord, and Adam Rosenfarb of MSC representing the tenant. AAA South Jersey signed a lease for a 1,945 s/f endcap unit, moving from a 1,500 s/f space that will become Jersey Mike’s, with Brunelli and Reizner representing both par- ties. Jersey Mike’s was repre- sented by Jarrad Coletta of Coletta Commercial . MAREJ
he retail real estate market is experiencing significant shifts due
new construction. However, this transition comes with its own set of challenges and strategic re- sponses. The allure
to the current economic cli- mate. With construction costs soaring over the past seven years from a low of $75 per square foot to as high as
of second- generation retail space lies primar- ily in its cost effectiveness. As the costs associated
Jim Tancredi
Joseph Latina
$150-$200 psf currently, busi- nesses are turning to second- generation retail spaces as a cost-effective alternative to
with new construction con- tinue to escalate, existing spaces offer a more affordable route for businesses looking to
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