Commercial Real Estate
Strip Malls’ Success Proves Retail Isn’t Dead
Neighborhood retail centers—particularly in densely populated areas—performed well throughout the pandemic.
You’ve likely read the headlines about store closures or even seen some of your favorite neighborhood shops shut their doors after the pandemic hit. But that doesn’t mean retail is dead. If you dig deeper into the asset class, retail offers unexpected opportunities. Specifically, many strip malls have performed well throughout 2020 and 2021, and they may bounce back quickly as the pandemic wanes.
If you want to successfully invest in a retail strip center, here are a few things to keep in mind.
- Look for properties in densely populated residential urban and suburban areas. It doesn’t matter if you’re in California, Texas or elsewhere in the U.S., retail centers in densely populated residential areas remain critical to their communities. Although there’s a high barrier to entry to these locations, the lack of space for development makes it easier to manage the supply side of the equation.
- Properties in city centers may be slower to recover. The pandemic had a major impact on retailers in city centers heavily reliant on office workers and tourism, such as Chicago’s Magnificent Mile, the Las Vegas Strip, and Midtown Manhattan and the Financial District in New York. The specific timeline is uncertain, but these retail locations are likely to recover as employees return to work and travel increases.
- Find tenants that provide in-person services or fast-casual dining. Think of the strip centers you pass by on your drive or walk to work—they’re the ones that performed well throughout the pandemic. These retail centers are often filled with a grocery store or pharmacy, plus spaces for smaller retailers, many of which provide in-person services that can’t be found online, such as haircuts, nail services and mail delivery. Fast-casual restaurants—such as sandwich shops, pizzerias and coffee shops—also performed well.
- Keep your spaces and upgrades generic. To appeal to a wide range of tenants both now and in the future, you want as vanilla a space as possible. For example, an 800- to 1,000-square-foot space will fit most retailers, as will standard upgrades. If tenants want specialized changes, consider offering them a few months of free rent as they handle improvements, which can help you maximize your liquidity.
Why You Should Invest in Retail Strip Centers Now
There’s a misconception that the pandemic forced most retailers to close. Many stores did close, and only time will tell how retailers reliant on office workers and tourism will fare.
But service-oriented strip mall retailers in densely populated urban and suburban neighborhoods performed well throughout 2020 and 2021. These properties have consistently performed well regardless of market conditions.
As we emerge from the pandemic, it's a great time to explore these retail opportunities because of a combination of unexpected vacancies, short-term leases and 1031 exchange time limits.