Adaptive Spaces

Strategies to Solve Retailers' Unmet Expansion Needs

2023 Retail Development Trends

May 9, 2023 8 Minute Read



Looking for a PDF of this content?

Retailers seeking expansion across the U.S. are encountering a problem unimaginable just a few years ago: a retail space shortage. The nationwide retail availability rate is at an all-time low without enough current construction to meet demand, inhibiting retailers’ growth plans. CoreSight reports the sector is projected to grow this year by a net total of 2,400 stores, accounting for approximately 40 million sq. ft. of retail absorption. Retailers absorbed more than 81 million sq. ft. of space last year, the second-highest annual total since 2016. This absorption was over twice the amount developed last year, according to CBRE’s Econometric Advisors. Neighborhood, community and strip shopping centers saw almost five times more absorption than space deliveries. In 2021, absorption was almost six times more than the space delivered.

Developers seeking to satisfy retailer space demand face challenges with site sourcing and financing amid economic headwinds, high interest rates and banking sector turmoil. Construction costs are also volatile due to pandemic-driven inflation, supply chain issues, and materials and labor shortages. The U.S. Bureau of Labor Statistics reported construction materials costs in February 2023 were 40% higher than in February 2020. These obstacles to new development make redeveloping existing sites a more attractive option.

In this report, CBRE details three U.S. retail sector trends and the strategies for investors to capitalize on them.

  1. Densify prime trade areas and mall sites:

    Space shortages are particularly acute at in-demand Class A malls and top shopping centers. They typically feature clusters of strong-performing stores and high foot traffic—underpinning a resilient business case to expand even with the current economic climate.


    Availability rate in prime U.S. retail submarkets

  2. Reimagine underperforming retail properties:

    Many Class B malls and lower-grade centers are well-located but underutilized, outdated or obsolete. Placemaking can enhance these sites’ potential by redeveloping them to match consumer and community demand. Adding a mix of modern retail, office, medical, residential or hotel spaces will achieve materially higher rents in aggregate than a typical retail center.


    YTD rent premium for mixed-use retail

  3. Explore booming tertiary markets:

    Tertiary markets are absorbing an influx of people who can work from anywhere and seek lower living costs. More than one-third of the U.S. population now resides in tertiary markets. Retailers are looking for developments located near these fast-growing customer bases.


    Tertiary markets’ share of U.S. population growth since 2019

Figure 1: Retail Space Absorption, Deliveries and Availability

Source: CBRE Econometrics Advisors, Q4 2022.

Figure 2: Multiple of Space Absorbed vs. Space Delivered

Source: CBRE Econometrics Advisors, Q4 2022.

Densification Strategy

Many retailers are scouting Class A malls and shopping centers in prime trade areas for expansion plans. These Class A malls are often the trade area’s centerpiece, ensuring consistently high customer traffic. As a result, they continue to enjoy lower vacancies than the overall U.S. retail market average. Prime submarket availability was 2.8% in 2022, and non-prime submarket availability was 4.9%.

Developers and investors can densify these sites to meet this demand, while also diversifying the tenant base and customer experience with new kinds of stores, restaurants and more. The assets’ established footprints can mitigate risk from economic issues like higher construction cost.


The Esplanade at Aventura, a 215,000-sq.-ft. open-air dining and retail destination, debuts in Miami’s Aventura submarket this year. Its diverse tenant base consists of restaurants, “medtail” and office, including 30,000 sq. ft. leased to Industrious, the flexible office and coworking operator. The Aventura submarket is one of the U.S.’s top retail destinations, with almost 5.4 million sq. ft. of space and just a 0.8% availability rate. The submarket’s trophy property is Aventura Mall, which is A++ graded by Green Street and averages almost $1,500 per sq. ft. in annual retail sales. The Esplanade at Aventura is directly next to the mall, developed on the site of a former Sears.

Image of The Esplanade at Aventura

Figure 3: Prime Submarket Availability vs. All Other Submarkets

Source: CBRE Econometrics Advisors, Q4 2022.

Reimagination Strategy

Class B and lesser grade malls that underperform can suffer from lack of investment, perpetuating a vicious cycle of underperformance. These malls have an 80% average occupancy rate. However, 60 of these malls, representing almost 54 million sq. ft. of retail space, are in strong trade areas, and may be primarily suffering from competition with one or two other better-maintained nearby malls.

These underperforming malls in strong trade areas can offer redevelopment opportunities that unlock significant value. The Urban Land Institute recently spoke to owners of successful open-air retail properties across the U.S. and determined these commonalities led to success: matching market demand and shopper profile to tenant mix, site design and configuration, and creating a community vision. Vibrant architecture, green space, store space updates, introducing new uses and experiences can refresh a mall’s market position.


Retail owners such as Kimco Realty are re-entitling their sites for residential use at high scale. In 2022, it entitled 2,800 apartment units for development at currently active retail sites. Kimco has already built 2,218 apartment units, with 1,139 under construction. Its goal is to construct 12,000 apartment units at re-entitled retail sites by 2025.

Image of shop icons

Figure 4: Total Footprint of Underperforming Malls by State

Source: CBRE Econometrics Advisors, Q4 2022.

Figure 5: Mixed-Use Retail Rents vs. Total Retail Rents

Source: CoStar, CBRE Research, Q1 2023.

Mixed-use redevelopment is a critical component of placemaking. Reimagining retail sites to add offices, apartments, hotels or other asset classes can often better meet consumer demand, increase foot traffic, and diversify tenant mix. CoStar reports NNN retail rents within mixed-use developments averaged a 23% premium over the last decade. Apartments average 12% premiums and offices average 11% premiums when in mixed-use districts. These reimagined sites have even attracted alternative tenants such as medical or flexible office space operators. CBRE’s 2022 Global Live-Work-Shop Report found:

  1. Looking for more:

    Over 65% of people desired a better work location with more retail and dining options nearby.


  2. Closer to home:

    Over 70% desired a shorter commute.


  3. Desired amenities:

    45% favored nearby housing or hotels.


There is also strong demand for electric vehicle (EV) charging stations in mixed-use redevelopment. The U.S. Bureau of Labor Services estimates over 2 million EV vehicles were on the road in 2021. The amount of EV charging stations must quadruple by 2025 and grow eight times by 2030 to meet projected demand growth, according to S&P Global Mobility. Retail sites with large parking lots are good candidates for this. The EV site operator can benefit from the lot already being graded, developed and tied into the utility grid.

Tertiary Market Strategy

Pandemic-induced remote work and lifestyle flexibility trends are largely here to stay. These trends, coupled with continued housing unaffordability in larger markets, keeps driving tertiary market migration. CBRE’s 2022 Global Live-Work-Shop Report found 41% of people who wish to relocate over the next two years desire a more remote location. U.S. Census data suggests the same, as tertiary markets outperformed both primary and secondary markets in population gain from 2019 to 2022. Tertiary markets accounted for 47% of total U.S. population growth and 62% of net migration, despite containing just 34% of the total U.S. population.

Image of townhomes

Figure 6: Population Change by Market Grouping, 2019-2022

Source: Oxford Economics, 2022.
Note: Primary Markets include MSAs of 4 million persons and over. Secondary markets include MSAs of 1 to 3.99 million persons. Tertiary markets include MSA's under 1 million persons.

Figure 7: Net Migration by Market Grouping, 2019-2022

Source: Oxford Economics, 2022.
Note: Primary Markets include MSAs of 4 million persons and over. Secondary markets include MSAs of 1 to 3.99 million persons. Tertiary markets include MSA's under 1 million persons.

Lower land, materials and labor costs – as well as less government regulation in many areas – enables cheaper retail redevelopment in tertiary markets than in larger markets. Despite this, foot traffic and sales are often comparable due to less competition.

California offers examples of construction costs varying by regional market size. Weighted average construction costs in tertiary markets like Stockton and Palm Springs are lower than in the primary markets of San Francisco and Los Angeles, according to RSMeans data. Stockton, a beneficiary of migration from large northern California metros, averages around 13% lower construction costs than San Francisco.

Figure 8: California Weighted Average Construction Costs by City

Source: RSMeans data, CBRE Cost Consultancy, Q1 2023.

It is critical to acknowledge tertiary markets are more sensitive to labor market vagaries, given their smaller pool of available laborers, construction companies and contractors. Projects must be executed during times when local worker availability is plentiful since labor accounts for 60% of direct development costs. Opportunities should be carefully evaluated on a market-by-market basis.


The bottom line is U.S. prime retail availability is at an all-time low, while retail development is muted and retailer space demand is up. Construction starts hit a new low in Q4 2022 because economic headwinds have made new development cost prohibitive. This dynamic often creates compelling opportunities for well-thought-out retail redevelopment to fill the gap between supply and demand in today’s U.S. retail market.

Image of retail store fronts

Related Services

Insights in Your Inbox

Stay up to date on relevant trends and the latest research.