Strip Malls Are the New King of Retail Real Estate

Investment Insight

The entire Prudent Growth team was delighted to see yet another article reinforcing our long-held investment thesis on the attractiveness of multi-tenant, neighborhood convenience centers (such as our Shops at Turner Hill in Lithonia, GA, pictured above). These assets are a particular focus of our recently launched Prudent Growth Fund II, and we have completed over 10 acquisitions of neighborhood retail assets so far this year alone (with eight of those being Fund II investments). A few key takeaways from The Wall Street Journal article are below:

Strip Malls Are the New King of Retail Real Estate

The pandemic is reshaping suburban shopping habits with more people working at least part-time from home. Annual visits to strip malls increased 18% last year compared with before the pandemic, according to retail and commercial real estate data analytics firm RetailStat, which analyzed foot-traffic data from 2,500 centers.

 These changing habits are boosting strip malls as tenants compete for space. Average-asking rents at U.S. convenience store centers reached a record-high $20.37 a square foot in the third quarter, a 17.3% increase compared with the same period in 2019, according to CoStar Group, which tracks data dating back to 2006. 

 “People who previously drove straight to the office after school drop-off are now grabbing a coffee or running errands on their way home to hop on video calls. Others are visiting FedEx and UPS more frequently to mail back items bought online. And the rise of food-delivery services has increased the desirability of retail that is close to the road and allows drivers quick and easy access.”

 The rate of available space in strip malls fell to 5.3%, representing the tightest level of supply on record. “There used to be space for all of us, and now there’s not,” said Nate Ohme, director of real estate for the hair-salon chain Great Clips. “They’re just not building the magnitude of shopping centers like they used to.” 

 Great Clips, which has approved franchiser plans for 75 net-new salons this year, is competing for space with businesses ranging from coffee shops to medical offices, Ohme said. The chain operates in a variety of locations, but the ideal spot is a strip mall close to the road and easily accessible to its customers, who spend about 15 minutes on average in the salon chair.

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