What are the pros and cons of redeveloping your shopping center?
A need for a tenant mix that is resistant to e-commerce and facilitates a unique experience is prompting owners of older retail centers to redevelop their properties.
Multiple factors that spur redevelopment projects are the basic need to charge higher rents, the structural and aesthetic deterioration over time, and a desire to restore the public perception of vibrancy.
Modern consumers are attracted to experiential concepts and properties that are destinations.
For shopping centers, this typically entails adding more restaurants, critical services, or a unique shopping experience, as well as integrating open recreational spaces.
For malls, adding entertainment uses is becoming increasingly common, particularly when an anchor space has been vacated or sold back to the owner.
Sluggish sales and/or negative rent growth can be the catalyst for pulling the trigger on a redevelopment project, but without marketing to and leasing tenants that can afford market-rate rents, align with the surrounding demographics, and drive foot traffic throughout the property, it’s all for naught.
Rising costs of construction materials and labor still impact budgets for redevelopments. When you tackle everything from parking to landscaping to signage, those costs can add up quickly.
It’s critical to enhance the property from an aesthetic perspective to bring in the best-in-class tenants and be able to charge the maximum amount of rent.
In redevelopment scenarios, one of the biggest challenges is to change the public perception and convince prospective merchants that your vision for the redevelopment is real and attainable.
Coordinating schedules with the best project partners can be tricky and can easily lengthen construction timelines, leading to higher labor costs and extended time frames for stores to be closed and sales to be lower. Other variables, such as weather to community support for the project, can also adversely factor into the equation.
Lenders in the retail space are looking more closely at tenant profiles, from credit to concept, more closely in today’s market.
Landlords will sometimes abate or discount rents during construction to compensate for lower traffic and sales. It’s critical to keep tenants in the loop on timelines and objectives for the project.
Current tenants that plan to remain at the center post-completion can certainly be impacted by construction. Working closely with these users to negotiate rent abatements before ground breaks can make for a much smoother transition.