Outparcels in commercial real estate are the smaller plots of land typically surrounding retail centers and shopping centers but still part of the property at large. These plots, also commonly referred to as pads, are typically used to add value to the larger property by constructing smaller buildings for businesses such as smaller retailers, QSRs, banking branches, and other service-based retail options. These outparcels can be very attractive to national retailers, as they come with their own distinct advantages over spaces within traditional shopping malls. 

Why Outparcels are Leading Current Leasing

In the past, outparcels were viewed by many as fringe buildings that housed small businesses that had been added to the center as an afterthought and, as a result, were not properly planned or developed to supplement the businesses in a shopping center. However, today retail centers are using outparcels to effectively increase the overall profitability of the center by leasing to complimentary businesses that allow for shoppers to spend more time and money at these centers. This trend has become more prominent in the wake of the COVID pandemic, which has aided the move away from indoor shopping malls and accelerated the closure of already failing business models.

Outparcels offer a wide range of benefits in the current market, such as customer-focused conveniences, including drive-thrus, mobile ordering, curbside pickup, and improved visibility over spots inside traditional indoor malls. This is leading many property owners and developers to instead consider redeveloping existing spaces to include these options for customers. With QSRs, there is also a growing trend of stacking multiple drive-thru lanes to optimize service, and the space dedicated to outparcels facilitates these changes. Furthermore, many businesses are purchasing older drive-thru-ready locations for redevelopment, over starting new developments. This trend is especially strong in cities and jurisdictions where there are more limitations on the development of drive-thrus and harsh stacking requirements that produce limitations for opportunities.

Larger Pads Aren’t Attracting Sit-Down Concepts in the Current Market

While they have historically been a popular spot for traditional sit-down restaurants, these larger pads aren't attracting sit-down concepts as much in the current market. In the past, one or two pads in front of a retail center would be a good fit for restaurants, giving them the space to develop and serve customers visiting the center. Today, the increased costs are making it harder to secure sit-down concepts. Many restaurant concepts are still attracted to these types of properties but then are priced out by the current rent rates that they are facing. These elevated rents are more favorable to fast-casual dining and QSR establishments. The combination of convenience and profitability that comes with fast-casual dining concepts has even incentivized many traditional dining retailers to move into offering options to their customers. As a result, outparcel land is increasingly being split into several pads to allow for a range of options, capitalizing on the high traffic counts brought in by other businesses and creating busy corners and retail centers at large.

Outparcels in commercial real estate have come a long way from being viewed as fringe buildings housing small businesses to becoming an increasingly sought-after property type in the current market. This is mainly achieved by leasing to complementary businesses that allow shoppers to spend more time and money at the centers and also the trend of redevelopment to include convenient options such as drive-thrus and curbside pickups. This shift towards more outparcel development, as well as the changing customer preferences post-COVID, is shaping the current retail development and leasing market.