REAL ESTATE NEWS

Retail real estate may have regained momentum, but developers are not treating today's stronger fundamentals as a license to build indiscriminately. With construction costs high and retailers tightly managing occupancy expenses, the projects that move forward increasingly have a clear investment case: creditworthy tenants, meaningful preleasing, public incentives and a design that gives customers a reason to stay.

That was the central message from a development panel at ICSC@Western in San Diego, where executives also described artificial intelligence as a growing advantage in a business that requires teams to evaluate more deals, reduce internal friction and manage assets more efficiently. Attendance at this year's event reached 3,200, compared with about 2,700 in 2025.

Stronger Fundamentals Raise The Bar

Retail's improved operating environment is creating opportunities, particularly for value-add investors and developers. But it is also raising expectations for the quality of the assets and the projects that can attract capital and tenants.

Scott Bohrer, vice president of development at CenterCal Properties, said the sector has worked through much of the weaker tenancy that had weighed on retail in prior years. Sales per square foot at top-quality assets have never been stronger, he said, while mall REIT values have risen 16% year-over-year.

That combination underscores that demand for physical retail is real, Bohrer said. Still, it does not change the discipline required to make a project work.

"Every project needs to have a story," he said.

For investors, that means strong sector-level fundamentals alone are not enough. Construction remains expensive and retailers are closely monitoring their occupancy costs. Bohrer said that tenant discipline is one sign of a healthier market, because retailers are more selective about the locations and economics they are willing to accept.

Preleasing And Incentives Drive Feasibility

Joshua Simon, founder and CEO of SimonCRE, said the economics of ground-up development remain difficult, even with retail demand improving. His company has shifted toward open-air centers and is focusing on projects where several conditions are in place: tenant credit, preleasing and public incentives.

"If there is a recipe, you have to have most of those things," Simon said.

SimonCRE is also concentrating its development activity in Sunbelt markets. He said the development business remains demanding and noted that the industry lost a generation of talent following the 2007-08 downturn.

"It is a brutal business," Simon said.

The comments highlight the divide between interest in retail development and the ability to execute it. Investors may find more opportunity in well-located, high-quality projects, but higher costs and more exacting tenant requirements are making underwriting more important.

A compelling location or strong retail fundamentals may help, but developers still need the tenant commitments, incentives and operating assumptions to support the economics.

AI Expands Deal Capacity

As deal flow rises, developers are using AI less as a novelty and more as an operating tool.

Bohrer said CenterCal is using Claude to create a quick analysis tool that helps the company evaluate potential opportunities and prepare an initial investment pitch. The firm is seeing enough value-add deal flow that it would be difficult for the team to assess every opportunity without assistance from AI.

"We wouldn't be able to look at the amount of deals we have without some of these tools," Bohrer said.

For Dan Almquist, managing partner of Almquist, leasing and property management are among the areas where AI could have the most immediate impact. His company manages its own properties and recently retained an AI firm as it looks for ways to automate and improve parts of its operations.

"If we could chew away at what we are spending on leasing development, we will," Almquist said.

Simon said SimonCRE is using AI to increase speed and reduce friction across the organization. He described the company's effort as building self-improving skill sets, with AI helping produce financial outputs and handle work that had previously consumed more time.

"We go faster with less friction," Simon said.

For development teams, the practical appeal is clear. AI can help underwriters and deal teams screen more opportunities, assemble early-stage analysis faster and reduce the time spent on repetitive tasks. It does not eliminate the need for judgment, however, particularly in a market where project feasibility still depends on tenant credit, rent economics and long-term demand.

Placemaking Requires A Long View

Developers also must balance their own costs against the costs carried by tenants. Almquist said his company is focused on creating places where communities want to spend time, but that objective must be pursued with a close understanding of retailers' operating pressures, including insurance, taxes and other expenses.

"One of my big learnings is putting my tenant hat on and giving them a premium space and learning what we can do and what they can do," Almquist said.

The goal is to create an environment where tenants can succeed over the long term, rather than simply deliver a visually appealing project, he said.

That same long-term view applies to placemaking investments. Bohrer said amenities can be hard to justify when evaluated only through an immediate return-on-investment calculation. He recalled seeing the cost of a major fountain installation and questioning the expense, only to later see people gathering around it and spending time at the property.

"You have to take what has worked in other places and adapt it to a new reality," Bohrer said.

The financial return may not be apparent on the first day, he said, but it can become clearer over a 20-year holding period. Centercal's financial partners are willing to take that longer view, Bohrer said.

For retail investors, the takeaway is that durable performance may depend as much on a property's ability to create repeat visits and longer dwell times as on its initial development budget.

In a market where tenants are selective and construction remains costly, developers are betting that the strongest assets will be those that combine disciplined economics with an experience shoppers and retailers value.

Source: GlobeSt/ALM