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U.S. developers have cut new space by one-third so far in 2008

The U.S. retail real estate industry is slashing its new retail building and additions in 2008. While there will always be some “new” supply even as some of the “old” retail stock is retired or replaced, the rate of new space or supply that is being generated in 2008 is down sharply from previous years, according to the latest data from McGraw-Hill Construction through July.

Between January through July of this year, all retail subclasses tracked by McGraw-Hill Construction slowed markedly by more than a third ( down 37.4 percent from last year) compared with similar periods during prior years. The only retail property category that is still seeing impressive growth is freestanding drug stores, which are showing an 18.5 percent faster rate of expansion in 2008 than in 2007. Supermarkets are trying to hold their own with a 0.9 percent increase in new square footage in 2008. Not surprisingly, those two categories represent consumer spending staples. Retail in mixed-use properties is down more than 40 percent in 2008.

Regionally, the Midwest has taken the biggest hit in 2008 with all retail space slashed 45 percent from 2007’s pace. The Northeast was off the least ( down 23.2 percent from last year), while the reduction in the space additions in the South and West each moved in lock-step with the nation.

By project count, McGraw Hill recorded nearly 3,700 retail properties in 2008 so far that either are being built or are part of an existing property that is being expanded. This includes 19 mall properties, 74 community centers and 223 neighborhood centers.

Although big-box additions still account for the lion’s share of the new supply, that portion dropped to 28.9 percent between January and July in 2008—lower than the 31.6 percent reported during the same period last year and much lower than the 40.2 percent share reported during the same period in 2005. In lieu of that supply, the supermarket share rose to 6.4 percent in 2008 from 4.8 percent in 2007; drug stores rose to a high of 4.6 percent from a much lower share of 2.9 percent in the prior year.

Modest share gains were scattered throughout most of the other categories in 2008.
“Although these data give only a sketchy picture of the retail supply story, the message is clear. Retail space continues to expand—even in 2008—but the rate of new space being added has been pared dramatically,” said Michael P. Niemira, ICSC’s chief economist and director of research. “Moreover, most retail segments have been touched by the commercial real estate slowdown.”