Retailers are looking to expand despite high construction costs and interest rates, leading to increased redevelopment of existing shopping centers.

In a new article published by ICSC Adam Ifshin says: “Retailers have seen the incremental additional rent as manageable versus the growth opportunities that they have. The smart retailers haven’t stopped expanding. They know that if they wait, it’s only going to get more expensive because there has been no new development and there’s not going to be anytime soon.”

Companies like DLC, CBL, and Brixmor are reinvesting in their properties, often replacing vacant big-box stores with more profitable tenants. High demand for retail space is pushing rents up significantly. This trend is driven by the lack of new development and the ongoing demand for retail expansion. Firms are also focusing on redeveloping pad sites and smaller spaces to meet market needs. Even with headwinds from high interest rates and construction costs, retailers are willing to pay higher rents to get deals penciled.

There is fierce competition between retailers for space. Ifshin details a situation where a retailer executed a lease for an already occupied space which is contingent on the current tenant, Joann, leaving the suite in the next two years. “It has effectively bought an option at a radically higher rent than what Joann is paying in the hopes that the space becomes available.”

One final method for redeveloping properties – acquisitions. While finding deals with upside has become more difficult, a lack of new supply is likely to keep demand high and competition fierce for the foreseeable future.

Read the full article here.