By: KeyCrew Media
Developers and investors talk about leasing risk all the time. Far fewer talk about creation risk, and that gap is costing some mixed-use projects years of vacancy and millions of dollars. According to Ann Ehrhart, founder of EVERSTREET, a Boston, Massachusetts retail leasing and strategy firm, the two are not the same thing, and confusing them is one of the most common reasons ground-floor retail struggles.
“Leasing risk assumes that you have market demand, meaning you have consumers coming to your location for goods and services, and you have retail tenants that actively want to be in that location,” Ehrhart said. In that scenario, the job is closer to matchmaking. You are pairing a site with tenants who already want to be there, on terms that work for both sides.
Creation risk is a different problem entirely.
Creation Risk Means Demand Has to Be Built, Not Found
Creation risk shows up when a project sits in a corridor or location that does not yet have market demand, and that demand has to be cultivated from scratch. Ehrhart pointed to a few common examples: an up-and-coming neighborhood, a corridor that has been in decline and is poised for a turnaround, or a stretch of blocks that simply does not have much retail activity yet.
In those situations, no crowds are already showing up for goods and services, and no meaningful line of tenants is asking to sign a lease. “So you don’t have a lot of retail leasing activity. That’s creation risk,” Ehrhart said. Before a leasing strategy can even begin, the project has to work through a process to generate that market demand first.
This is the core distinction Boston developers need to understand before they commit capital to ground-floor retail. A leasing strategy built for a location with existing demand will not automatically work in a location where that demand still has to be created.
The Warning Signs Show Up Later Than You’d Expect
One of the trickiest parts of creation risk, according to Ehrhart, is timing. The decisions that create the problem happen early, often during permitting, entitlements, and design, long before leasing ever starts. But the consequences do not show up until much later.
“Retail leasing really begins in the permitting, entitlements, and design phase, but you may not see the implications until you start leasing,” she said. By then, it can be too late to fix cheaply.
Common warning signs include chronic vacancy, spaces that sit on the market far too long, and frequent tenant turnover. Sometimes a tenant does sign, but the space is essentially on life support for the entire lease term.
Ehrhart offered a concrete example. Picture an existing retail corridor with strong market demand that can comfortably support a 5,000 square foot sit-down restaurant. Now take that same 5,000 square foot restaurant concept and drop it into what she calls an Untested corridor, one with creation risk, without enough tenant improvement allowance to help the tenant get established. That mismatch is exactly where chronic vacancy and turnover start to appear.
Reading the Corridor Comes First
To make creation risk measurable rather than a matter of opinion, Ehrhart’s firm classifies every location into one of three corridor types: Destination, Convenience, or Untested. A Destination corridor, like Newbury Street in Boston, draws a wide mix of tourists, residents, and office workers, with strong demand from both shoppers and tenants. A Convenience corridor serves a narrower, more local crowd, think the pharmacy, the grocery store, or the morning coffee run for people who live or work nearby. An Untested corridor has neither consistent shopper traffic nor tenant interest, which makes past performance hard to predict.
“These corridors exist on a spectrum. They’re not rigid; they’re dynamic,” Ehrhart said. The goal when working in an Untested corridor is to move it toward Convenience or Destination status over time.
Getting that classification right matters because it determines what should happen next. Merchandising, design, and underwriting must be built around the corridor type, and location is the one variable a developer cannot change after the fact.
Why This Distinction Changes the Conversation
For developers weighing a retail component on a new project, or investors evaluating a repositioning opportunity, understanding whether they are facing leasing risk or creation risk should shape the entire plan from the start, not just the leasing strategy at the end. It affects underwriting assumptions, tenant improvement budgets, and the realistic timeline to stabilization.
Ehrhart’s approach treats creation risk as something that can be assessed and planned for, rather than discovered the hard way after a space has already been sitting empty for a year.
EVERSTREET is a Boston, Massachusetts-based retail leasing, strategy, and activation advisory led by Ann Ehrhart, a 20-year retail leasing veteran working with mixed-use developments across the Boston area and into new growth markets. Learn more at everstreet.co.
Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
