Expansion-minded retailers snap up limited vacant space

Filling in the blanks

I often shop at a small but very well-tenanted community center in Boca Raton, Florida. The development boasts a Whole Foods, Shake Shack, Barnes & Noble and – until recently – a Bed Bath & Beyond store. With the bankruptcy and subsequent closures of the home furnishings retailer, I was curious to see who would take over the space and how long it would sit vacant. I did not have to wait long. The space – which sits right next to the Whole Foods – was quickly backfilled by a Michael’s. This underscores the scarcity of available space in desirable locations. 

As we covered in our Retail Outlook Report Q4 2023, since the great recession – when big box stores suffered significant losses and bankruptcy – retail construction activity has slowed to a mere trickle and available space has been minimal. When big box space does become available, as we can see with my Bed Bath & Beyond example, it is generally quickly backfilled by another tenant. And by no means is this the only instance. Another Bed Bath & Beyond located next to The Fresh Market near me was swiftly replaced by a Spirit Halloween store last fall.

Between 2017 and October 2023, top retailers who backfilled vacant big box space included discounters, fitness centers and craft/hobby tenants. Hobby Lobby backfilled the most square feet, while Burlington took the largest number of vacant spaces.

F&B drives small space leasing activity

By no means was 2023 leasing activity confined to big boxes, however. According to CoStar over two-thirds of retail leasing activity comes from small tenants occupying less than 5,000 square feet, on average. Food and beverage tenants, in particular, have been snapping up small spaces under 3,000 square feet, accounting for 20% of all leasing activity. The below chart shows the most active 2023 tenants by size range. For smaller spaces, quick-service restaurants Wingstop and Raising Cane’s nab the top spots.

Discounters leased the most space in 2023

When all is said and done, though, money talks… and deals holler. With the CPI roughly 19% above 2019 levels, consumers continue to search for bargains wherever they can find them. Dollar stores, mass merchandisers and off-price retailers are the primary beneficiaries of shoppers’ cost-conscious priorities. As a result, discounters – primarily dollar stores and other low-price retailers – announced over 2,300 store openings in 2023. Dollar Tree, Five Below, Burlington and TJ Maxx are all among the top 10 retailers for the most square footage signed.

With a flurry of activity from discounters, F&B tenants and experiential tenants, new store opening announcements comfortably exceeding closure announcements. Our tally for new store plans announced by retailers in 2023 (regardless of opening date) is approximately 6,617 compared to 4,412 announced store closures.

Three trends that will affect retail in 2024

As we head further into 2024, we can expect for the challenge of available space to remain front and center. Although anticipated new space delivery in 2024 totals over 63 million square feet much of that is preleased and consists of freestanding built-to-suit retail. Here are a few other trends to look for during the year.

1. Retailers go all in on AI

Retailers will use Generative AI (genAI) to enhance consumers’ shopping experiences across channels and to maximize efficiency. Insider Intelligence estimates that 78 million Americans used genAI in 2023. Investment in this technology is expected to grow this year to offer personalized experiences and recommendations to shoppers.

2. Retailers are re-thinking self-checkout

Some retailers are reversing course on self-checkout lanes. Initially instituted to reduce labor costs, growing customer dissatisfaction, slow and erroneous scanning and retail shrinkage are all acting as major factors in the decision to reduce self-checkout lanes. One study showed companies with self-checkout had a loss rate of 4% (source: CNN Business), which is more than double the industry average. Retailers pulling back on this store feature at some locations–or adding additional staff to these areas–include Walmart, Target, ShopRite, Wegmans, Costco and Dollar General.

3. Grocery gets more competitive with return of Amazon Fresh

Amazon recently announced five new locations of its Amazon Fresh stores opening in Los Angeles and Chicago. The e-commerce giant also plans to amplify its grocery delivery service by offering delivery in select cities to shoppers who don’t belong to its Prime loyalty program.