Average Retail Lease Size Falls To New Historic Low
The average retail lease size for the first three quarters of this year was 3,200 SF, a new historic low indicative of a changing retail landscape.
Retailers are demanding smaller, more efficient spaces, according to CoStar, which found that for the first time, leases under 5K SF accounted for more than half of all new retail leases during the first nine months of the year.
Businesses that usually lease small retail spaces, including service and food and beverage tenants like Subway, are seeing massive expansions. But retailers that tend to occupy larger stores have shifted their space utilization, shrinking their store footprints, CoStar reported.
Barnes & Noble is one retailer starting to occupy smaller storefronts, including taking a 15K SF portion of a former 22K SF Bed Bath & Beyond in Atlanta.
“We are looking at between 13 and 14 more new stores in 2023 across a large range of sizes and types,” Barnes & Noble CEO James Daunt told Bisnow this summer. “We've got one that's 30K SF opening in New Jersey, we've opened up some 25K SF-type stores, but we've also got some really quite small ones of 5K SF to 7K SF.”
Overall retail space leased in the first nine months of this year totaled 191M SF, down 9% from the same period last year, CoStar reported, though that total will likely rise as late third-quarter deals are recorded.
Leasing volume is expected to remain lower than in 2021 and 2022, which CoStar attributes to the pullback in average new lease sizes and a decline in the number of big-box leases executed.
Only 800 leases from the first three quarters were over 25K SF, well below the 1,018 seen during the same period last year and the five-year average of 967, the analysis found. Those 800 leases make up 17% of leasing activity recorded in 2023. The nine-month results also show leases of 25K SF or more falling below the five-year average of 19.5% of retail leases.
Meanwhile, the share of leases smaller than 5K SF is higher than average, surpassing 50% during the first three quarters of the year. This was the first time on record that has happened, according to CoStar.
Strip malls are seeing increased demand, with available space in strip malls falling to a new low of 5.3%, The Wall Street Journal reported last month. Visits to strip malls increased 18% last year compared to before the pandemic, according to data analytics firm RetailStat.
Even strip centers without a grocery or big-box anchor are seeing success, enough so that REIT Site Centers is breaking up its portfolio and creating a new publicly traded landlord focused on the sector and valued at $1.7B.