Private capital has largely stepped back from ground-up open-air retail development across the United States. According to Charles Lewis, who co-leads the multi-tenant retail disposition platform at SHOP Companies alongside partner Jason Little, the economics behind that retreat are structural rather than cyclical. The combination of post-pandemic construction costs, elevated land prices, and competition from higher-density uses has made speculative retail development financially unworkable for most private investors. What’s filling the void, Lewis says, is municipal money.
When Development Math Breaks Down
The core problem is a cost structure that has not recovered since the pandemic. Supply chain disruptions drove up hard costs across materials, labor, and logistics. Those costs have not meaningfully retreated. At the same time, land values have been pushed higher by competition from uses that generate more income per square foot.
Parcels that support multifamily projects with higher rents consistently go to residential developers, not retail ones. “Land pricing is not just competing with retail — it’s competing with uses that allow for more density and higher income, like multifamily,” Lewis says. The investment calculus is straightforward: acquiring an existing, income-producing shopping center at a discount to replacement cost is a more defensible use of capital than building new. “When it costs much more to develop new retail than to buy existing, no savvy investor is going to view development as a feasible opportunity,” Lewis says.
This dynamic is suppressing new supply at precisely the moment retailer demand is intensifying. Lewis says the tension is pushing rents higher and vacancy lower across the country.
Retailers Overpromise, Space Underdelivers
While construction economics have choked off new supply, unusual pressure is building on the demand side. Lewis points to a pattern among large national retailers: publicly committing to aggressive expansion targets to satisfy investor expectations, even when the physical space doesn’t exist.
Large tenants are telling Wall Street they plan to open thousands of stores by decade’s end because growth projections directly affect stock prices. The result is a contradiction: retailers with real expansion mandates are competing for a shrinking pool of space in existing centers while new supply remains largely absent. Lewis describes the situation as a structural imbalance. Demand for retail space is rising, but the development pipeline that would normally respond has been shut down by cost economics.
This pressure is particularly acute in essential services and food-and-beverage categories, where smaller-format tenants are actively seeking new locations but finding limited options.
Cities Now Fund Retail Development
Given these cost pressures, ground-up retail projects now depend on government support to move forward. Tax incentives, infrastructure contributions, and direct municipal investment have shifted from deal sweeteners to structural requirements.
“The vast majority of development you’re seeing across the country has municipal money going toward it,” Lewis says. “Pure development without city support is extremely hard to find right now in open-air retail.”
Oklahoma is not exempt from this dynamic, even as the state experiences strong population and economic growth. Oklahoma City is the 20th largest city in the United States, a fact that surprises many observers, and the state recently recorded more inbound migration from Texas than outbound for the first time in state history. Oklahoma is seeing development activity, with several large power center projects in the pipeline across the state. Lewis is direct about the conditions required: municipal money remains essential for those projects to make financial sense.
Why Existing Assets Win Now
The development cost problem reinforces the investment case for acquiring existing open-air retail rather than building new. Buyers can acquire income-producing properties at a significant discount to the cost of equivalent new construction, a gap that continues to widen as development economics remain unfavorable.
That thesis played out clearly in a recent transaction. Last month, Lewis and Little closed the sale of Mayfair in Oklahoma City, a four-building, 68,000-square-foot neighborhood shopping center built in the 1950s as Oklahoma City’s first suburban retail center. The property sold for $17 million, making it the largest retail transaction in Oklahoma so far this year and the second-largest neighborhood retail transaction in Oklahoma City history. The buyer was Humphreys Capital, a local real estate investment firm based in Oklahoma City. The seller, Caleb Hill of Precor Ruffin, had acquired the asset in 2019 and completed a full-scale redevelopment, bringing two existing buildings to Class A condition and constructing a fourth building in 2024. The transaction took roughly 10 months from the initial letter of intent to closing.
Lewis frames the current environment as a natural, if extended, phase of the retail development cycle. When development becomes feasible, the entire industry tends to move at once, building until supply exceeds demand and the economics break down again. “One developer doesn’t suddenly realize it. The entire industry does,” he says.
The cycle will eventually turn, Lewis suggests, but only when rents rise high enough and construction costs moderate enough to make private development viable again without public subsidy. Until that point, the gap between replacement cost and acquisition cost continues to favor buyers of existing retail assets. Municipalities will likely remain essential partners in any new supply that reaches the market.
