The development of shopping centers and strip malls has been an essential part of the growth of commercial real estate in the United States for many years. However, in recent times, the increasing cost of materials and labor shortages has slowed down the construction and development of new properties. This has led to delays in projects and increased costs for developers, which can ultimately affect the price of renting space for tenants.
Material Costs
One of the significant factors contributing to the slowdown in the development of shopping centers and strip malls is the increased cost of materials. Prices for lumber, steel, and other construction materials have risen significantly in the past few years, driven by supply chain disruptions caused by the pandemic, increased demand, and tariffs on imported goods.
The cost of lumber, for example, has risen dramatically, with the price of lumber reaching an all-time high in May 2021. This has led to increased costs for developers, who may have to pay significantly more for building materials than they had originally planned for.
The impact of rising material costs is particularly significant for smaller developers, who may not have the same negotiating power as larger developers when it comes to purchasing materials. This can make it more difficult for them to compete in the market and may result in delays in the completion of their projects.
Labor Shortages
Another factor contributing to the slowdown in the development of shopping centers and strip malls is labor shortages. The pandemic has caused disruptions in the labor market, with many workers leaving their jobs due to health concerns or other factors. This has led to a shortage of skilled workers in the construction industry, which can result in delays and increased costs for developers.
The shortage of skilled workers has also led to increased competition for labor, driving up the cost of wages. Developers may have to pay higher wages to attract skilled workers, which can add to the overall cost of the project.
Furthermore, the pandemic has also caused delays in the processing of permits and inspections, which can further slow down the development process. This delay can lead to missed deadlines and increased costs for developers, which can ultimately affect the price of renting space for tenants.
Impact on Tenants
The slowdown in the development of shopping centers and strip malls can have significant implications for tenants. The delays in the completion of projects can result in a lack of available space, which can make it more difficult for tenants to find suitable locations for their businesses.
Additionally, the increased cost of materials and labor can result in higher rents for tenants, as developers may need to recoup their costs. This can be particularly challenging for small businesses that may not have the resources to absorb these higher costs.
The delays in the completion of projects can also impact the timing of a tenant’s move-in, which can affect their ability to generate revenue. For example, if a tenant planned to open their business in a new shopping center in time for the holiday season but the project is delayed, they may miss out on crucial revenue during this time.
Solutions and strategies for dealing with the increased cost of materials and labor shortages in the development of shopping centers and strip malls include working closely with contractors to find ways to reduce costs without sacrificing quality, exploring alternative materials that may be more cost-effective, and adapting project timelines to account for potential delays. Developers can also consider alternative financing options and partnerships to help offset costs and improve cash flow. By taking a proactive approach and exploring all available options, developers can overcome these challenges and continue to bring new shopping centers and strip malls to market.
Last modified: March 22, 2023
