With cap rates remaining near record lows, retail real estate firms searching for higher yields continue to plow projects into development and redevelopment pipelines. Foreign investors and small investors — like 1031 exchange buyers — are still active on the acquisition front. Most of the larger firms and REITs spent their time showcasing projects.
Lauth Development, for example, has developments worth $600 million under way, including eight retail projects. Developers Diversified Realty's pipeline is worth $1.2 billion. And Taubman Centers has 10 announced projects it's working on with a net value of more than $1 billion (and more projects to be announced on the way). Meanwhile, Related Cos. showcased brand new models for its Grand Avenue project in Los Angeles (above) and CityNorth in Phoenix. And that's just the tip of the iceberg.
Developers expect yields of between 8 percent and 11 percent on new projects and redevelopments, which represents a healthy spread to cap rates that remain in the 5 percent to 7 percent range.
In both building new centers and refurbishing older ones, the trend toward open-air construction and mixed-use remain dominant. “Much of the redevelopment we see is about the construction of an outdoor environment on the site of an indoor center and redesign of the vacant spaces left by consolidated department stores,” says Tipton Housewright, principal with architecture firm Omniplan.
“All the projects we're doing are in a similar vein,” says Steve Kieras, senior vice president of development with Taubman. “They all have town centers, are more urban or have mixed-use components.”
Retailers themselves are helping drive the development wave. The larger convention made room for retailers to expand booths or to operate them for the first time. And many developers commented that the leasing activity taking place wasn't for projects coming on-line in 2007 or 2008, but for 2009 and 2010, indicating that retailer demand for new locations remains rapacious.