Challenged by scarcity of land and escalating building costs, the industry has embraced alternative site solutions and reduced the size of new construction, according to the report. The typical store opened last year covering 49,000 square feet, the smallest in five years and a significant reduction from 1998’s high of 57,064 square feet.
New store openings – at five percent – reached a decade high, and openings outpaced closings by a margin of 2.1 percent, according to the report.
Though major remodeling rates (five percent) hit the second lowest point in ten years in 1999, an increasing number of retailers are undergoing minor remodeling projects. The survey suggests that retailers are trying to readily accommodate changing consumer demands by adding new services, such as pharmacies, banking centers, take-home prepared foods and dry cleaners.
New Construction, Remodeling and Leasing Costs Soar
While building costs – the largest component of new store development – rose by 15 percent to a median of $64 per square foot last year, the overall price of new construction decreased slightly. Excluding fees for land, parking lots, site development, some professional services and
financing, total construction costs fell from $106.50 per square foot in 1998 to $103.32 per square foot last year. The report suggested the drop could be partially attributable to greater reliance on relocated equipment, used in 29 percent of new openings last year.
Major remodeling costs have increased sharply in the last five years, perhaps due to the large number of companies undertaking expensive store expansions. Though companies reported a broad range of capital investment expenditures in 1999, the median reached $1,849,000. Store expansions also hit a decade high at 43 percent of remodels, with the median store size increasing by 7,000 square feet, according to the study.
The competitive marketplace also drove rental rates up last year. Average minimum rental rates for existing stores increased by 25 percent (to $7.06 per square foot), while the same cost for new stores hit $12.31 per square foot – a five-year high.
New Stores Focus on One-Stop Solutions
New store construction projects in 1999 concentrated on expanding the convenience of one-stop shopping, according to the report, with banking centers and pharmacy operations being among the most sought after new service departments. More than half of all new supermarkets reported an in-store bank (51 percent) or an ATM machine (54 percent). Most new stores (68 percent) featured a pharmacy and about one-fourth included separate natural foods sections, suggesting an excellent opportunity for retailers to educate customers about health and wellness issues.
As American shoppers consume more meals away from home, supermarkets continue to seek a larger share of that profit pie. Supermarket operators made fresh food for takeout available in 59 percent of new stores in 1999.
Other services included in new store construction include on-site photo processing (29 percent), dry cleaning (22 percent) and in-store childcare (12 percent).
To purchase Facts About Store Development 2000, available only in CD-ROM format, call FMI’s Publications and Video Sales Department (202/220-0723) or visit the FMI Web site (http://www.fmi.org/pub). The cost is $30 for members; $60 for non-members.