Brittany Megrath on Why Multi-Tenant Development Makes Financial Commercial RE Sense

Written by:

Steve Marcinuk

Date:

02 Dec 2025

KeyCrew Studio

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M Square Commercial’s Brittany Megrath on how rising costs are reshaping retail development strategy

Commercial real estate developers face a straightforward problem in 2025: land costs, construction expenses, and capital access all increased simultaneously while single-tenant economics became increasingly challenging. The solution emerging across multiple markets involves splitting costs between two tenants rather than one, fundamentally changing how retail developments pencil out.

Brittany Megrath of M Square Commercial sees this shift playing out across their client’s development pipeline. Rather than placing single tenants on properties, developers increasingly pursue multi-tenant, multi-parcel deals that divide purchase prices, site work costs, and overall budgets between two concepts. The math works better when two tenants share financial burdens.

“Instead of just placing one tenant on a property, because land costs are so high, cost of capital is so high, construction is so high, we’re seeing some of our clients lean towards a little bit larger of a property and having two tenants that can fit on the property,” Megrath explains. “That makes the numbers look a little bit friendlier and a little bit easier to get across the finish line.”

The Footprint Factor

This strategy gained viability as retail tenants simultaneously reduced square footage requirements. Smaller footprints create larger pools of potential tenants capable of fitting on properties together. While options remain limited compared to traditional big-box retail, the available tenant base has expanded enough to make dual-tenant developments practical.

The trend extends beyond necessity into opportunity. Recent M Square transactions demonstrate this diversity across tenant categories. Dutch Bros – with a roughly 1,000 sf building, 7 Brew coffee is on track to open two additional locations in Southern Louisiana this year, with a prototype building less than 600 sf in size. New projects are being planned for development with concepts commonly known as freestanding moving towards end cap drive-thrus and multi-tenant buildings.

These transactions represent different retail categories – beverages, food service, fitness – occupying spaces ranging from 1,200 to 4,000 square feet. The variety demonstrates how developers can mix complementary concepts sharing infrastructure while serving different customer needs.

The Beverage Boom

M Square is seeing accelerating demand in broader market trends favoring beverage-driven concepts. Coffee expansion continues accelerating, but specialty beverage categories now compete for prime locations. Drive-through tea concepts, sparkling soda shops with snack menus, and other beverage-focused retailers rapidly expand across multiple markets.

“The beverage industry is really ramping up,” Megrath notes. “We’re seeing tea concepts pop up where it’s a free standing drive through business that offers an assortment of teas. We’re seeing other beverages that are sparkling sodas, different flavors, and then they’ll come with a small menu of snacks.”

These concepts fit multi-tenant development economics perfectly. Small footprints, high transaction volumes, and drive-through formats create revenue density that justifies premium rents while occupying limited land. Developers can pair beverage concepts with complementary food service, personal care, or specialty retail without competition conflicts.

Recent M Square deals include lease extensions demonstrating tenant retention alongside new openings. Ohlala French Bistro extended for five years in Rampart Plaza, covering 1,993 square feet. Tint World executed a 10-year lease for 4,840 square feet in North Las Vegas, opening in December. Shepherd Eye extended for 10 years across 7,100 square feet, also in Rampart Plaza.

Year-End Tax Strategy Impact

Deal activity accelerates toward year-end driven by tax planning considerations, though timing varies by transaction type. Development contracts operate independently from calendar considerations because projects rarely reach completion within tax year boundaries. Developers structure deals around permitting and approval timelines rather than December 31 deadlines.

Investment sales activity, however, responds directly to tax strategy opportunities. Buyers purchasing completed assets leverage bonus depreciation and 1031 exchange timing to maximize year-end advantages. While M Square’s development clients don’t drive this activity, the investment sales market for completed retail properties shows increased fourth-quarter urgency.

“Those buyers on the other end of the spectrum purchasing these completed assets are purchasing and taking advantage of tax strategy,” Megrath explains. “End of year people want to take advantage of bonus depreciation, where are they putting their capital, and all of those tax strategies sort of start taking place.”

The Southeast Competition

Geographic preferences among M Square’s developer clients show strong consistency around southeastern target markets. Georgia, South Carolina, and Florida attract disproportionate interest in these states driven by population growth, favorable tax structures, and relatively attractive pricing.

Florida particularly benefits from tax incentives creating pricing premiums. Properties trade 75 basis points higher than comparable assets in other markets, reflecting investor confidence in market fundamentals and growth trajectories. This premium pricing coexists with continued development activity because residential growth drives retail demand.

“Retail follows residential,” Megrath notes. “As residential starts to build, residential brings the people, and then retail goes where the people are.”

Competition intensifies as more developers pursue limited available land in high-growth corridors. Multiple parties negotiate for identical properties, driving prices higher while compressing yields. The dynamic creates challenges for developers seeking reasonable basis while maintaining return thresholds.

Market activity extends across retail categories. Grocery stores, pharmacies, quick-service restaurants, car washes, oil change facilities, urgent care centers, and gas stations all expand in growing residential markets. Industrial growth additionally fuels demand for large-format travel centers serving trucking operations, with concepts like Love’s Travel Stops following warehouse and distribution expansion.

M Square targets approximately 30-40 annual transactions across its development, tenant representation, and advisory activities.

About M Square Commercial

Brittany Megrath leads development and tenant representation at M Square Commercial, serving retail developers and expanding concepts across multiple U.S. markets. The firm specializes in ground-up development, site selection, and NNN lease structuring for national and regional retail tenants.