The Strip Mall might be the Hottest Thing in Commercial Real Estate

Shops at Turner Hill - Lithonia, GA

After decades of decline brought on by the rise of large box stores, e-commerce, and the pandemic, the humble and sometimes derided neighborhood shopping center had long been on the outs. Many retailers shifted focus, buying and building large fulfillment warehouses instead of storefronts.

That's led to a perhaps surprising shift, according to The Wall Street Journal: There is now a dearth of supply of convenient neighborhood shopping centers, and that is driving up the value of existing ones.

Beyond just the value driven by scarcity, an uptick in in-person shopping also bodes well for the shopping center. Foot traffic to grocery stores was 12% higher in the third quarter of 2024 compared to the same time in 2019, before the pandemic, the Journal reported. And there are many small businesses that still attract IRL shoppers, like coffee shops and nail salons. Flexible work schedules are also allowing residents to take quick shopping trips nearby.

James Corl, head of New York-based private real estate group Cohen & Steers, wrote in a September blog post that the investment market for open-air shopping centers amounted to a "retail renaissance."

"Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth," Corl said in the blog post. "We believe that a durable acceleration in earnings growth combined with relatively high current yields will propel shopping center investment performance for some time, a reality that the market has yet to fully recognize."

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