Why Retail Concepts Are Shrinking and What It Means for Developers

Written by:

Steve Marcinuk

Date:

09 Oct 2025

KeyCrew Studio

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As construction costs and land prices remain elevated, retailers are adapting with smaller footprints, modular buildings, and multi-pad developments that spread basis across multiple tenants.

Five years spans a lot of change in commercial real estate. For Brittany Megrath, who grew M Square Commercial from Nevada-only to 60+ markets during that period, the transformation has been particularly visible in retail development patterns.

“That five years also spans over COVID, which had a lot of changes between just even popular uses,” Megrath notes. “When I started, boutique fitness was all the rage. COVID hit. Boutique fitness in general got crushed. Everyone was riding a Peloton in their house.”

But beyond pandemic-driven shifts, deeper structural changes are reshaping how retail development happens, what gets built, and where the opportunities are emerging.

The Shrinking Footprint Trend

One of the most consistent patterns: concepts are getting smaller.

“At one point, your QSRs were getting bigger, their footprints were getting bigger,” Megrath explains. “They wanted more people sitting inside. Now we’ve reverted back and we’re going back to your double drive-throughs, maybe only a small amount of chairs inside.”

The drivers are primarily economic. Lower footprints mean lower land costs. Smaller buildings mean reduced construction expenses. In an environment where both remain elevated, reducing square footage is the most direct path to making projects pencil.

Some retailers are taking this even further, using modular buildings that get shipped and dropped on site. It’s a practical response to construction cost pressures that shows no signs of abating.

“I think that’s probably a constant evolution,” Megrath observes. “Maybe one day when land prices drop, all the concepts will grow again. But right now, definitely trending is smaller concepts trying to keep costs low but still continuing growth.”

The key phrase: growth is still happening. Retailers aren’t retreating. They’re adapting.

The Multi-Pad Solution

Another adaptation to high land and construction costs: developers are increasingly looking at multi-pad opportunities rather than single-tenant developments.

The math is straightforward. If you’re developing a single-tenant net lease property, the entire land basis gets allocated to that one tenant. If you can develop the same site with two or three pads, you spread the land cost across multiple tenants.

“They can create a single tenant out of purchasing a larger property and then really developing three instead of one,” Megrath explains. “It’s making the numbers work a lot better because our land prices are still high, our construction prices are still high, even our interest is still high even though it’s kind of starting to adjust.”

This shift creates different opportunities for both developers and brokers. Instead of hunting for a single perfect site for one tenant, the calculation becomes: can this property support multiple concepts? How do you optimize the configuration? Which tenant mix works?

It’s a more complex puzzle but potentially more profitable if executed well.

Single-Tenant Net Lease: Still Active

Despite the multi-pad trend, single-tenant net lease development remains active, particularly for retailers with strong credit and specific site requirements.

M Square Commercial has leaned heavily into representing developers in this space. The work involves identifying sites that meet exact tenant specifications, then executing the complex process of securing off-market properties, navigating entitlements, and delivering a finished pad ready for construction.

The appeal for developers is straightforward: strong corporate tenants on long-term leases create stable, predictable income streams. If you can acquire land at the right price and deliver the project at a cost that supports market rents, the returns work.

The challenge is finding sites that check all the boxes: right location, proper zoning, full access, and achievable cost basis.

The Cost Gap: Seller Expectations vs. Developer Budgets

Perhaps the most persistent challenge in today’s market is the disconnect between seller expectations and what developers can actually pay.

“There’s such a big gap between what the sellers will sell at and what a developer can make pencil in their budget,” Megrath says. “It’s really, at the end of the day, all funneled through to the tenant’s rent. If the tenant is not willing to pay a rent that will cover that land cost, then you’re out of luck.”

This dynamic plays out in every market MSC operates in. Sellers remember what land sold for in previous cycles. They have expectations based on neighboring transactions or assessed values that don’t necessarily align with current development economics.

Developers, meanwhile, are working backward from tenant rent. If a Starbucks will pay $180,000 annually and you need to cover land acquisition, construction, financing, and generate acceptable returns, the land price is constrained regardless of what the seller thinks it’s worth.

Bridging this gap requires patience, education, and sometimes just waiting until seller motivations change or market conditions shift.

What COVID Actually Changed

Looking back at the five-year period, COVID’s lasting impact on retail has been more selective than many predicted.

Boutique fitness took a significant hit, with many operators not recovering. The shift to home workout equipment and at-home fitness content accelerated trends that were already emerging.

But service-oriented retail has proven resilient. Car washes, oil changes, automotive services, and food service concepts have continued expanding. These businesses can’t be replicated on Amazon. They require physical presence and their demand drivers remain intact.

“Not everything can be sold on Amazon,” Megrath notes. “Some of these service businesses are really booming.”

The retail category is broad: it includes gas stations, automotive services, QSRs, and all food service concepts. When people talk about retail being dead, they’re typically thinking about traditional merchandise retail, not the service-heavy concepts that continue driving development activity.

The Role of Traffic Generators

Traffic generators continue to dominate location strategy, possibly even more than before.

A Walmart pulling 3 million people into a trade area creates opportunity for everything around it: coffee shops, quick-service restaurants, automotive services, and specialty retail. Even if actual foot traffic into the Walmart has declined due to delivery and curbside pickup, the location still generates far more activity than areas without anchors.

“Even if there is a decline in foot traffic in these grocery stores, you’ve still got far more foot traffic in that area than you would five blocks away with no anchor,” Megrath explains.

This reality shapes site selection strategy. The heart of retail in any market is typically a fairly small section centered around major traffic generators. That’s where MSC concentrates research and outreach efforts.

The Education Component of Off-Market Deals

One unexpected aspect of M Square Commercial’s business model is the amount of education required to secure off-market properties.

“You can be calling someone that’s lived in that house for 50 years and they just happen to be located in a newly commercialized corridor,” Megrath explains. “You could be talking to someone who inherited land but they have no connection to real estate. They have no idea of the value that was handed down to them.”

Development contracts are long and complex. They include due diligence periods, entitlement contingencies, environmental studies, surveys, and permitting processes. These contracts can take a year to close.

For sellers unfamiliar with commercial real estate, this is intimidating. Why does environmental need to come to the site? What’s a survey for? Why does permitting take so long? What are the risks?

Walking sellers through this process requires patience and communication skills that go beyond traditional transaction management. It’s relationship building and consultation as much as brokerage.

“You can have some really interesting conversations on a cold call,” Megrath says. “You can meet some interesting people, and you can even create opportunities outside of that deal from these cold calls.”

Local Market Dynamics: The Irreplaceable Variable

Despite operating in 60+ markets, M Square Commercial relies heavily on local broker partners for market intelligence.

“I can run some numbers based on some of the costs that have gone into a site, but what’s the actual local market telling you?” Megrath explains. “I need the local broker.”

Local brokers provide broker opinions of value, identify active buyers and franchisees in the market, and bring deal flow that isn’t visible through national database searches. They also navigate local political dynamics that can make or break entitlement processes.

The relationship between national site selection expertise and local market knowledge isn’t competitive. It’s complementary. MSC brings tenant relationships and site identification methodology. Local brokers bring market knowledge and relationships that can’t be replicated remotely.

The AI Question: Where It Helps and Where It Doesn’t

The commercial real estate industry is grappling with AI adoption. For a research-intensive business model like M Square Commercial’s, efficiency gains from AI could be significant.

Megrath has been proactive, enrolling in CRE AI Studio’s class taught by commercial real estate professionals. The goal: identify where AI can replace time-intensive manual processes.

“If I can purchase or upgrade an AI platform that can do something in five minutes versus hiring or outsourcing, that’s a huge bonus for us as a small boutique firm,” she explains.

But AI has limits. The initial outreach to property owners, the educational conversations with sellers unfamiliar with development processes, the relationship building with local brokers: these remain fundamentally human activities.

The opportunity is in the data processing, research compilation, and project tracking tasks that consume significant time but don’t require human judgment. Monday.com’s AI capabilities help here. Additional tools focused on property research and comparable analysis could provide further efficiency.

The firms that will win are those that use AI to eliminate drudgery while preserving the human elements that actually create value: communication, negotiation, relationship building, and judgment calls on which properties are worth pursuing.

What the Next Five Years Looks Like

Looking ahead, several trends seem likely to persist:

Continued focus on service retail. Concepts that can’t be replicated online will continue expanding while merchandise retail faces ongoing pressure.

Smaller footprints as the default. Unless construction costs and land prices decline significantly, retailers will continue optimizing for lower square footage.

Multi-pad developments gaining market share. Spreading land basis across multiple tenants will remain attractive in high-cost markets.

Off-market opportunities as competitive advantage. As more brokers adopt similar strategies, the firms that execute best on relationship building and seller education will differentiate.

AI as efficiency enabler, not replacement. Technology will continue automating research and project management tasks, but the core business remains relationship-driven.

The retail landscape has changed significantly over five years. It will continue evolving. But the fundamentals that drive successful site selection: understanding tenant requirements, identifying optimal locations near traffic generators, securing off-market properties through relationship building, and navigating local entitlement processes: those remain constant.

“Retail is alive,” Megrath says definitively. “Retail is well.”

For developers who understand the new dynamics and work with brokers willing to do the actual work of site selection, opportunities remain abundant.

Brittany Megrath is founder of M Square Commercial, specializing in retail site selection and single-tenant net lease development across 60+ markets in the United States.