In a recent article with Globe St. titled, “Why Vintage Retail Strip Centers Are Gaining a Second Wind,” Matthews™ VP and Associate Director Danny Gonzalez talks about how the recent increase in the cost of construction has created an opportunity for owners of “vintage” properties.

 

The retail sector has seen a significant slow in new construction as developers are struggling to make ‘new projects pencil.’ On average, the cost to build a new retail center, at roughly $250 to $300 per SF, has made it ‘difficult to support with today’s market rents.’

According to Gonzalez, the lack of new supply is creating an opportunity for older, dated retail centers to have a fresh start through strategic upgrades. The slowdown has generated big opportunities, for owners willing to complete a capital improvement plan, to ‘elevate second-generation retail properties.’

 

Under current market conditions, investors and developers have applied the strategy of revitalizing existing retail properties, to create a solution in order to meet increasing retail demand (without starting her groundbreakings). “It’s really tough for a lot of tenants to make sense of the rents they have to pay here because of how high the land costs are for the developers when they go into the property,” explains Gonzalez. “So, as a result, we are seeing second-generation strip centers starting to pick up.”

Ideal candidates for these revitalizations are typically properties that are 20 to 30 years old, with many being well-located assets more than capable to ‘well serve today’s tenants and consumers.’ “You can make sense of revamping these decades-old strip centers,” says Gonzalez. “They’re still beautiful properties. They are very usable, and tenants can have much better long-term viability at these types of sites.”

Even after renovations and upgrades, these properties can also offer increasingly competitive retail rents.

 

Despite revitalization being the ideal strategy under current market fundamentals, ‘much of the existing retail stock is dated.’

“There are a lot of inherent issues with the older buildings themselves,” says Gonzalez. “The typical lifespan of a roof, for example, is about 20 years. These upgrades are the biggest cost when we’re selling some of these older buildings.”

 

Read the full article here to learn more about the new opportunity emerging for owners of older retail properties.