According to CBRE, retail availability has fallen nationwide to an 18-year low. They attribute this to the high cost of construction which continues to limit new development. The cost of new construction may be two to three times as high as the cost of renovating an existing building. With building materials and labor costs at all-time highs, it is difficult to make a new building pencil out without very expensive lease rates, and moving into second generation spaces is often a preferred alternative.
2023 also marks the first time since 2006 that suburban areas have less retail availability than urban areas. As workers shift away from the office and spending time in the city center, their spending habits have also shifted to areas closer to home. Millennials and Gen-Zs are spending more time outside of cities, yet they still want the experiential retail and upscale restaurants that urban centers have to offer. This has caused a surge of new businesses outside of the metropolitan areas which have absorbed a good deal of the available suburban retail spaces.
Traverse City has grown from the trend away from urban areas. Our retail offerings have expanded due to the increase in remote workers moving to our area, as well as transplants looking to start new businesses that can provide their livelihoods. In the past couple of years, we have benefited from a surge of new retail businesses including gyms, bike stores, a sporting goods store, virtual golf, a curling center, cannabis retailers, clothing stores, resale stores, an animal rehab clinic, personal care, health care options, massage therapists and many others.
Many of these new retail businesses are experiential businesses that sell services and experiences instead of traditional retail goods. These businesses do not compete with on-line businesses which gives them an advantage to attracting local customers. The other group that is filling local retail spaces is the restaurateurs. We have seen a huge jump in the number of restaurants, and many are small enough to be run by their proprietors with a minimal staff. As labor has become more difficult to find, more restaurateurs are focusing on smaller venues that can be staffed with a smaller crew and are often open shorter hours or a limited number of days. In the past couple of years Traverse City has gained restaurants such as Modern Bird, 2 Sons Pizza, Glendale Burger, Archie’s Social House, Common Good Bakery, Loco Boys Brewing and Le Macaron French Pastries, just to name a few.
While it may be difficult finding a retail space for the next couple of years, we are starting to see growth slow in this sector. Rents have been increasing substantially over the past few years, but according to CBRE, asking rent growth has moderated, suggesting that landlords believe demand could ease in coming quarters as the U.S. economy begins to slow down. In the meantime, consumers are benefiting from a growing number of choices in retail and dining experiences.
Dan Stiebel, CCIM