Following years of decline created by online shopping, the pandemic, and the emergence of larger retailers, neighborhood shopping centers, sometimes known as strip malls, are making a comeback.
A Surprising Shift
The simple lack of strip malls has rendered those that exist valuable commodities. Large investment institutions like Blackstone realized this and began hedging their bets on these locations. Last November, the company spent $4 billion to purchase Retail Opportunity Investments, which owns a significant number of shopping centers.
Blackstone’s President, Jon Gray, said that the economic struggles experienced by the commercial real estate market have recently ebbed to some degree. Now, the industry as a whole sees value in assets like strip malls.
To such investors, what seemed like an outdated concept has gained momentum and is considered a key part of re-establishing the commercial retail market.
“If you were an investor in real estate after the financial crisis, you would have made a lot of money,” Gray said. “And my guess is, if you are an investor today, the same thing will happen.”
Additional Reasons for the Boom
Aside from the decrease in existing strip malls, an increase in in-person shopping is strengthening them. Market insiders believe this trend bodes well for the present and the future.
According to the Wall Street Journal, in-person attendance at locations like grocery stores jumped 12 percent during the third economic quarter of 2024 compared to the same timeframe in 2019, before the pandemic.
Moreover, strip malls often house numerous small businesses that can attract shoppers, such as small medical facilities, yoga practitioners, beauty salons, and coffee shops.
Economists also credit the changing work environment as an underlying factor to the strip mall’s recent success. Prospective shoppers now work more flexible hours than before, giving them more time to conduct such activities. In addition, many now hold hybrid work arrangements or are completely remote making it easier for them to shop at their convenience at establishments closer to their homes.
Furthermore, market insiders believe that a neighborhood shopping center’s size and location are critical. Their smaller volume makes it simpler to peruse and find adequate parking. They are often found in locations that attract less traffic. Once inside, shoppers may discover smaller crowds and shorter lines.
Jumping on the Bandwagon
Notable establishments seek to capitalize on the opportunity strip malls present. Retail giant Macy’s announced that it planned to open 30 new but smaller-format stores in off-mall locations. These new destinations will be significantly finer than their traditional offerings and contain fewer selections than those in larger shopping facilities.
Not All Roses
Not everyone is quick to jump on the bandwagon. Some criticize strip malls because they lessen the aesthetic quality of the municipalities where they are located. Others think that their locations create environmental problems and threaten the existence of prototypical business districts.
The Future
James Corl, who heads the New York real estate corporation Cohen and Steers, opined in a September blog that the market for open-air shopping centers is increasing now and will continue in the foreseeable future. Last summer, the firm purchased a fully leased outdoor shopping center in San Mateo, California for $127 million.
“There are many open-air retail deals occurring with five to six banks actively bidding for the financing,” said Chris Decoufle, managing director of the United States retail capital market for the commercial real estate firm Coldwell Banker Richard Ellis (CBRE).
“Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth,” Corl said. “We believe that a durable acceleration in earnings growth combined with relatively high current yields will propel shopping center investment performance for some time is a reality that the market has yet to fully recognize.”
