Why Now Might Be the Best Time in Years to Build a Shopping Center

At first glance, this might seem like a strange moment to consider building a shopping center. Interest rates are still elevated, construction costs remain stubbornly high, and the headlines tend to focus more on store closures than ribbon cuttings.

But look closer, and a very different story emerges: vacancy is near all-time lows, rents are rising, and demand for quality retail space is outpacing supply by a wide margin. In fact, the case for ground-up retail development hasn’t looked this compelling in years—especially for developers with a clear strategy and the right tenant mix.

Let’s explore why.

Retail Space Is Scarce—and Getting Scarcer

Retail vacancy rates are hovering at some of the lowest levels in decades. As of early 2025, vacancy at open-air shopping centers is around 6.2% nationally. Even with a few high-profile closures this year—including more than 7 million square feet of shuttered space in the first quarter alone—markets have absorbed most of that space quickly.

What’s driving this tightness? A dramatic slowdown in new construction. Since 2020, average annual retail deliveries have plummeted to just 81 million square feet—well below the 300-million-square-foot averages seen during the 2000s. Today, only about 45 million square feet of retail is under construction across the entire country.

In other words, the pipeline is virtually dry. Retailers are expanding, but there’s very little new product coming online to meet their needs. That imbalance is creating opportunity for those willing to build.

Rents Are Climbing

This scarcity is translating directly into stronger rents for landlords. Asking rents for shopping centers rose 4.1% over the past year, with Q1 2025 alone registering a 3.7% year-over-year increase. CBRE projects rent growth to average around 3.1% annually for neighborhood and community centers through the end of the decade.

While the rent growth isn’t explosive, it’s consistent—and for developers, that kind of steady upward movement supports long-term income assumptions and helps offset the impact of rising construction costs. Importantly, the rent increases are being driven by real tenant demand, not speculative froth. Service-oriented retailers, grocery chains, medical users, and fitness brands continue to expand, particularly in suburban and Sun Belt markets.

Construction Costs Are a Real Challenge

None of this is to say that building is easy. Material costs are up significantly—steel, copper, aluminum, and other key inputs have risen between 8% and 20% over the past year, fueled in part by ongoing tariffs. Labor remains expensive and in short supply, and financing costs—while off their peak—are still well above pre-2022 levels.

CBRE estimates that in many top-tier markets, retail rents would need to rise by as much as 65% just to make new development pencil under typical assumptions. That kind of sticker shock has sidelined many would-be projects.

And yet, the very difficulty of building is part of what makes it so attractive. If it were easy, the market would be flooded with new centers. But because it’s hard—because few developers can or will take on the risk—those who do are poised to deliver into a supply-starved environment. That dynamic gives new projects pricing power and long-term defensibility.

Build What Tenants Want

Of course, not all retail formats are equally viable. Developers today are finding success with projects that reflect how and where people shop now. Grocery-anchored centers continue to outperform, buoyed by daily necessity traffic and stable tenant credit. Medical, pet care, fitness, and food-and-beverage users are also expanding, especially in open-air centers.

Suburban markets—particularly in the Southeast and Southwest—have shown sustained population growth, strong household formation, and a renewed preference for proximity-based retail. Live-Work-Play environments in these areas are capturing demand from both consumers and tenants, with some mixed-use formats now commanding rents on par with urban high streets.

The lesson? Retail development today must be highly intentional. Cookie-cutter formats won’t cut it. But thoughtfully designed centers that meet the needs of today’s tenants—especially in growing suburban markets—can deliver durable income and value.

Capital Is Coming Back to Retail

Another sign that the tide is turning: investors and lenders are coming back.

Retail investment volume hit $57 billion in 2024, up 5% year-over-year, with cap rates for stabilized shopping centers holding firm in the 6–7% range. Major institutional players are making big bets on necessity-based retail. Blackstone’s recent $4 billion acquisition of grocery-anchored centers was a powerful endorsement of the category.

On the lending side, banks that wouldn’t finance a retail deal two years ago are now competing to back well-located open-air centers. Lenders are still selective, but for the right project, capital is available—and increasingly eager to deploy.

Timing Is Everything

Retail development is a cyclical business. The best projects tend to get built when others are sitting on the sidelines. Right now, few developers are willing to take on the complexity of building in this environment—but that’s exactly what makes it such a promising time to move.

If you can manage construction costs, structure your financing carefully, and target the right tenant categories in the right markets, the long-term fundamentals look strong. Limited supply, rising rents, stable demand, and renewed investor appetite all point in the same direction.

The opportunity isn’t without its challenges. But for developers willing to lean in, 2025 may mark the beginning of the next great cycle in retail development.