Tenant demand will outpace retail construction in 2016: Report
Publish Date: December 10, 2015
In another sign that physical retail is in robust health, demand for U.S. retail space is high and will remain high even as more space comes online in the coming year, according to JLL’s Development Outlook for the coming year.
“Demand for quality retail space continues to outpace new construction, resulting in consistent vacancy compression and rising rents across most major markets,” wrote James Cook, director of retail research for JLL, in the report. “In the last two years vacancy rates have fallen 120 basis points, and even with new supply we anticipate that vacancies should remain low through 2016.”
By the end of this current year, some 82 million square feet of retail space will have opened across the U.S. for 2015, yet the national vacancy rate stands at just 5.8 percent. An additional 83 million square feet is still under construction, JLL says. Stand-alone retail buildings, small neighborhood centers, and grocery-anchored and power centers make up 76 percent of new construction. The top five markets, which account for 40 percent of the new construction, are northern New Jersey (with 3.3 million square feet); south Florida (3.2 million square feet); Houston (2.9 million square feet); Dallas–Forth Worth (2.7 million square feet); and Boston (2.6 million square feet).
U.S. retail construction hit a peak of 261 million square feet in 2006, JLL says, and declined thereafter; within five years it had dropped by about 77 percent to 59 million square feet. “Today, U.S. retail sales have fully recovered, yet national retail construction remains at low levels,” according to the report.
“Necessity focused retail space is driving construction this year, with most new space diversified and driven by grocery or service-based retailers,” said Larry Jensen, director of development at JLL, in the report. “In the coming year, we expect to see a focus on redevelopments of existing retail centers, expansion of centers when possible and much repurposing and repositioning of properties to better serve their markets both with new retailers and a new ambiance.”