A retailer choosing between Columbus and San Jose this quarter has two rent numbers, two sales forecasts, and one build-out budget.
The rent numbers are local. The build-out number usually isn't, because the documents it comes from aren't.
A franchise disclosure document budgets the build-out as one range for the whole system, whatever the market. Public chains publish one number too. In its fiscal 2022 annual report, BJ's Restaurants targeted $6.0 to $7.0 million per restaurant nationwide, with a note that actuals "could be greater or less than the targeted amounts due to geographic location."
The street-level price usually arrives with the contractor bid, after the letter of intent. By then the market is already picked.
The same in-line store costs $120 a foot to build in the Midwest and $217 in Northern California. The national average is $157. That leaves a $97-per-foot spread the single number hides.
Cushman & Wakefield surveyed 15 general contractors across 15 markets. Building out the same store in Northern California costs 1.8 times what it costs in the Midwest.
The national average rose just 1.4% this year. Underneath it, the inputs are still climbing.
The national average hides the site decision
According to Cushman & Wakefield, weak demand offset higher labor and material costs.
ISM's July services report (members only) put its prices index, the share of firms paying more for their inputs, at 70.3%. It's been above 70 four times in the past five months. The twelve-month average is 68.1%, the highest since April 2023. Weak demand is what's holding the average flat, and it's the only thing that is.
The guide prices by the foot and doesn't assume a store size. At 4,000 square feet, the $97 spread comes to $388,000 before a single customer walks in. Across a ten-year lease, that's $38,800 a year.
Call it the second rent. It behaves like rent. It's set by the market you picked.
A single national build-out number can misprice every site in your model. The error is biggest where rent is already highest.
Landlords are setting the terms
The quote is one market price. The lease is another. Kimco and Regency disclose what those lease terms looked like this quarter.
Kimco matched its all-time-high occupancy of 96.4%. Small-shop occupancy reached a record 92.9%. New leases went out at a 40.4% cash rent spread, the markup over what the previous tenant paid for the same space. Blended spreads, which fold in renewals, ran 13.1%.
Regency Centers came in at 96.9% leased. Its comparable spreads were 10.4% cash and 19.5% straight-line. Same-property NOI went up 3.8%.
The occupancy number is why the spread number holds. A center that's 97% leased has almost no vacancy pressing the landlord to deal. Kimco's new leases signed 40% above the prior rent on the same space; Regency's 10.4%, which folds renewals in, still ran double digits.
The valuation data says the same thing. Green Street's all-property index, which blends every property type, rose 5.2% over twelve months. The firm attributes 2 to 3 points of that to rental income. On Green Street's math, roughly half of the increase came from landlords charging more, not cap rates falling.
These aren't market-wide samples. They're two landlords talking about leases they chose to sign and disclose. The terms still show where asking rents are this quarter.
Sign a lease this quarter and the signature carries both the rent increase and the local capex premium. Only the rent shows up in the comp set.
Building the store pays more than buying it finished
Rent spreads show what owners collect from occupied space. Regency's release gives a second comparison: a cap rate near 6.3% on 2026 acquisitions against a near-9% yield on $680 million of development and redevelopment. Those two numbers price different deals. A going-in cap rate prices a center someone has already built and leased. A development yield prices a project someone still has to finish and fill. The gap between those published yields is 270 basis points. The figures don't tell us how much of it pays for construction, leasing, timing, or development risk.
The Fed held rates at 3.50% to 3.75% on July 29. They've stayed there since December 2025. All three dissents on the 9 to 3 vote wanted a hike, not a cut.
The ten-year Treasury rose to 4.5%. CBRE has the average net-lease cap rate flat at 6.9%; on its unrounded figures, the spread narrowed 10 basis points to 241. Retail's share of net-lease volume slipped to 22% from 24%.
Capital still bought retail in Q2. Net-lease volume rose 6%.
In Regency's comparison, the development yield is higher than the acquisition cap rate. The build-out is one part of the development case behind that spread.
Treat a landlord's tenant-improvement offer as part of the investment case. Regency's spread is one published reference point.
Fixed costs don't wait for traffic
After the store opens, fixed rent and sunk fit-out stay in the model when sales fall. The two filings show that exposure; they don't establish fit-out as the cause of either failure.
Salad and Go closed all 70 of its remaining locations on August 5, the day after parent And Go Concepts filed Chapter 11. Dutch Bros agreed to buy the real estate assets at as many as 65 sites across Arizona, Nevada, Oklahoma and Texas.
The real estate found a buyer before the concept did.
Quality Fresca, the largest Moe's Southwest Grill franchisee, filed the same day. FY2025 net sales were $58.9 million against negative EBITDA of $111,204. It blamed the filing on falling foot traffic running into fixed rent and debt service. Its count fell from 67 units at the 2020 buyout to 38 at the petition date.
Put the build-out number in the market ranking itself. A $97-per-foot swing can change the ranking, but only if it arrives before the decision.
Keep the tenant-improvement offer beside the site's construction budget. It's part of the same decision.
Watch the August 13 producer price index. June's print fell 0.3% on a 6.4% drop in energy. If that relationship holds, the effect would show up in fit-out quotes about two quarters later.
-Andrew
Founding Team Member, GrowthFactor