Retail developers have become a bit more cautious in pursuing ground-up development in light of the economic slowdown and concerns about consumer spending. While few projects are being scrapped altogether, firms are pushing back projects to openings in what they hope will be a more auspicious economic climate.
Still, there are plenty of developments in the works. Overall, according to Bethesda, Md.-based CoStar Group, the retail market has added 450 new projects already in 2008 bringing the total number of shopping centers to 98,791 with a total leasable area of 6.8 billion square feet of space. The majority of the projects coming on-line are smaller centers. There are, however, a few notable exceptions. For example, Westfield is working on a pair of one-million-square-foot centers opening in London. One will come on -line this year and the other in 2011, in time to operate for the 2012 Summer Olympics.
“To bookend the east and west ends of London is a once-in-a-lifetime opportunity,” says Randall Smith, executive vice president of business development for Westfield.
That's a common refrain among the big projects moving ahead. Developers with unique opportunities in strong markets are the ones most likely to succeed in this climate.
Bloomingfield Hills, Mich.-based Taubman hasn't altered its development strategy as a result of the economic turmoil, continuing to focus on high-demographic and high-growth markets. “We are looking at projects that will stand the test of time,” says Stephen J. Kieras, senior vice president of development for Taubman.
A challenge is being able to finance projects, however.
“For the right projects, we are still able to get financing, but lenders want more pre-leasing than in the past and more equity than in the past,” says Greg Sembler, CEO of Atlanta-based Sembler. “Lenders now want to talk about debt coverage ratios, rather than loan-to-value. With pre-leasing, they want to know that at least the core anchor tenants have signed up, as well as some in-shop tenants. They are asking for 80 percent pre-leasing levels on the boxes, and 30 percent to 40 percent on in-line space.”