U.S. retailers’ store opening plans hit a four-year high in July, setting off hope that a resurgence in new development projects might be just around the corner, according to the August edition of National Retailer Demand Monthly report from RBC Capital Markets and Retail Lease Trac.
RBC estimates that over the next two years the retailers in its database plan to open a total of 78,325 stores, an 11 percent increase over the number of store openings projected at year-end 2011 and a 0.6 percent increase over plans announced in June. Dollar stores, including Dollar General and Family Dollar, have some of the most ambitious expansion plans in the retail universe right now, as do restaurant chains such as Subway, KFC and Five Guys Famous Burgers and Fries.
Five Guys Famous Burgers and Fries, for instance, plans to open 1,200 new restaurants over the next 24 months, while Subway will open 5,000. There are aggressively expanding newcomers in the restaurant sector as well. Jake’s Wayback Burgers, which today operates only 24 locations, plans to open 350 new units during a two-year period.
Certain apparel sellers, particularly those specializing in active wear, appear to be in expansion mode as well. World Wear Project expects to open 650 stores by August 2014 and Teen Discount Zone will likely open 400.
These trends would be in keeping with store openings announced year-to-date in 2012. According to ICSC data, restaurant chain Chipotle announced the greatest number of store openings in the second quarter of the year, at 155 new units, followed by children’s apparel seller Crazy 8, at 80 new stores.
A lack of new construction projects might be part of what’s driving retailers to sign leases now rather than later.
During Kimco Realty Trust’s second quarter earnings call with analysts on Aug. 1, the REIT’s CEO David B. Henry noted that: “While retail real estate and consumer spending are vulnerable longer term to any form of economic double-dip, for now there is strong momentum among the majority of retailers as they execute expansion plans and growth strategies in the face of a shrinking supply of high-quality retail space.”
At the same time, “All this demand with little supply begs the question—when will new retail development begin again in earnest?” writes Rich Moore, an RBC REIT analyst and one of the report’s authors. “Public landlords have been consistent—development economics just don’t work yet. Nonetheless, we saw a few green shoots this quarter and a few more are on the horizon. Depending on the economic climate in early 2013, increased development plans may be the 2013 retail surprise.”
The CoStar Group, a Washington, D.C.-based research firm, predicts that based on historical supply growth factors, net completions of retail space in 2013 will total approximately 37 million sq. ft. By 2014, however, that number will grow to nearly 73 million sq. ft. That would make 2014 the best year for retail development since the commercial real estate crisis hit in 2008.