More People are Running Errands at Neighborhood Shopping Centers

Westwood Plaza - Greenwood, SC

When home builders downed tools after the 2008-09 global financial crisis, they planted the seeds of a housing shortage that is boosting the wealth of existing homeowners and investors to this day. The same thing is about to happen in retail, or at least one corner of it. 

Open-air neighborhood shopping centers are now one of the hardest types of commercial real estate to find space in. And rising occupancy rates in these retail centers have caught the eye of institutional investors.

The best open-air shopping centers have a large anchor store as the main tenant on a long-term lease. To fill in the space around the grocery store, landlords are leasing to small businesses that are hard or impossible for online players to compete with, such as nail salons, coffee shops, yoga studios and medical centers.  

Flexible work schedules are driving more traffic to neighborhood retail centers. White-collar workers who used to spend five days a week at a downtown office are now likely to work a day or two from home and can visit the local shopping center at lunchtime. 

“This is where America shops now,” says James Corl, head of private real estate at Cohen & Steers, a firm that has been bullish on open-air retail since 2023. 

Building costs have risen much faster than retail rents in recent years, so it is cheaper to buy an existing neighborhood shopping center than to build one from scratch. This bodes well for current landlords who will enjoy pricing power for the first time in years. According to Green Street, shopping-center rents in the top 50 U.S. markets would need to rise around 65% for fresh construction to be profitable. 

To read the full article, please visit wsj.com.