The best retail investment is the one you drive past every day

Neighborhood and community shopping centers sit in almost every town in America. They are the grocery-anchored plazas and open-air strips where daily shopping and errands take place: the supermarket, the pharmacy, the nail salon, the dry cleaner, the urgent care clinic, the deli that’s always busy at lunch. Most people visit one several times a week without ever thinking of it as “retail.” And that’s exactly the point. When investors hear retail, they picture the formats that struggled — enclosed malls, department stores, big boxes stocked with imported goods. The centers built around everyday necessity shopping were never that story.

Which is why the “retail apocalypse” narrative, for all its staying power, aged so badly. The store closures were real, but they were concentrated in a handful of specific formats, while the neighborhood centers most Americans use every week kept filling up.

After years of favoring warehouses and apartments, institutional investors have returned to retail, and much of their capital has gone to grocery-anchored centers. The important question is which centers are worth owning, and why. Answering this means understanding how these formats differ from other types of retail, why their fundamentals have held up through a decade of closures, what separates the best investment targets from value traps, and where an owner can still add value in a market that has largely caught on.

The supply-demand setup in retail is unusually attractive, but the real opportunity is not retail broadly. It is in acquiring and actively managing necessity-anchored neighborhood and community centers, where durable income comes with meaningful operational upside.
 

It helps to be precise about what these centers are, because “shopping center” covers a wide spectrum. The industry segments open-air retail into five broad formats, ranging from small un-anchored strips to sprawling power centers and destination lifestyle developments. They differ in size, in how far shoppers will travel to reach them, and most importantly, in what anchors them.

Our focus is the two formats in the middle: neighborhood centers and community centers. A neighborhood center is the classic grocery-anchored plaza, drawing shoppers from about a three-mile radius for the supermarket and driving foot traffic for the nail salon, the coffee shop, and the medical clinic alongside it. A community center is its larger sibling, adding a second or third anchor, often an off-price or discount retailer, and extending its reach to a three-to-six-mile trade area. What the two formats share is most important: an anchor selling daily necessities, a roster of small shops built on services and routine, and a customer base drawn from the surrounding few miles rather than across town. Shoppers don’t plan trips to these centers as an activity; they simply fold them into the week.
 

The story everyone remembers is real. For the better part of a decade, thousands of stores closed each year, household names like Sears, Bed Bath & Beyond, and Big Lots disappeared or shrank dramatically, and “retail apocalypse” became shorthand for an entire asset class in decline. Pension funds and asset managers that had been burned by malls, or that saw no reason to bet against the e-commerce trend, allocated elsewhere, mostly to warehouses and apartments, which absorbed record capital through the early 2020s. Retail never disappeared from institutional portfolios, but it lost the competition for new capital.

The casualties of these closures were overwhelmingly concentrated in department stores, low to mid quality enclosed malls, and big-box chains selling discretionary goods like furniture, electronics, and apparel, which a website sells just as easily. The formats organized around daily need experienced a different decade entirely.

People never stopped buying groceries in person, filling prescriptions, getting haircuts, seeing the dentist, or going to the gym. The neighborhood and community centers built around those routines kept their tenants, and when a space went dark, someone was usually waiting for it. The boxes failing chains gave up have largely been taken by expanding ones, with Barnes & Noble, Burlington, and Crunch Fitness moving into space vacated by Bed Bath & Beyond, Big Lots, and Party City. And e-commerce itself increasingly runs through these spaces, with stores serving as points for pickup, returns, and last-mile fulfillment for the retailers that occupy them.
 

Retail space per person peaked in early 2009, at the tail end of a building boom, and has been falling ever since.¹ Since the pandemic, roughly three square feet of retail have been demolished for every four delivered, and since 2021 retailers have absorbed roughly 23 million more square feet than developers have added.² With almost nothing new coming online, vacancy has held near record lows even through years of elevated store closures.

There is little in the pipeline to change that. The rising cost of land, construction, and financing has pushed the rents new centers require well above what most markets pay today.³ The same math explains why existing centers so often trade below what it would cost to replace them.
 

Scarcity has also shifted leverage on rent toward landlords, and the clearest evidence comes from the public owners of grocery-anchored neighborhood centers that report leasing results every quarter. At one of the largest, new leases this year have been signed at rents about a third higher than the prior tenant paid, and renewing tenants are paying a fifth more.⁴ Those leasing spreads may seem at odds with national rent growth that has largely stalled. But headline figures are being dragged down by a growing inventory of obsolete retail space lingering on the market, while high-quality neighborhood centers remain effectively full and can command sharply higher rents when turnover occurs.⁵

Institutional capital has followed those fundamentals back into the sector. In early 2025, non-REIT institutional buyers accounted for roughly 36 percent of multi-tenant shopping center acquisitions, up from about 8 percent the year before.⁶ Transaction volume in grocery-anchored centers reached roughly $16 billion over the four quarters through June, up nearly a third from a year earlier,⁷ and CBRE’s 2026 investor intentions survey found that 85 percent of institutional retail investors named grocery-anchored centers their preferred format, the highest reading of any retail type.⁸

The same conviction shows up in pricing, where top-quality neighborhood centers now trade in the mid-to-high 5 percent range in gateway and primary markets and move into the low 6s in secondary markets.⁹ Power centers on the other hand can price very differently. Their valuations swing widely with the health of one or two anchors, and a few troubled tenants can push pricing from the mid-6s into the 8s.¹⁰ When institutional investors were asked to rank retail formats by expected investment performance over the next decade, grocery-anchored centers came out first, ahead of every other retail type.¹¹ Lower cap rates for neighborhood and community centers reflect that expectation. 

The easy phase of the trade, which amounted to buying quality centers at distressed-narrative prices, has largely passed for the most visible assets, and multiple bidders now compete for most institutional-grade centers that come to market. With less discount to capture, more of the return has to be created than acquired, which puts the weight on asset selection and what an owner does after closing.
 

Not every neighborhood or community center is an opportunity. Those worth institutional attention share a recognizable profile.

A dominant anchor. A grocery anchor is only as valuable as its sales, and what matters is less whether a center has a supermarket than whether that supermarket dominates its trade area. That means strong volumes, a lease with years left to run, and no better-located competitor pulling away its shoppers. The value a strong grocery anchor creates for the rest of the center is measurable: ICSC research has found that grocery-anchored centers draw roughly three times as many customers each year as un-anchored centers in comparable trade areas, allowing owners to charge 15 to 25 percent more for the in-line space around them.¹² That premium depends on the grocer, though, and a center anchored by a struggling regional chain carries a high risk of vacancy.

A defensible trade area: That means household growth, incomes that support the tenant mix, and barriers to new supply. The best centers would be difficult to replicate today, because land is scarce, entitlements are slow, or construction costs make competing development uneconomic. In much of the country, that last condition now does the work by itself.

A gap between how it runs and what it could earn. This is the least visible from the outside. Long-tenured private ownership tends to leave value on the table in predictable ways: in-place rents set years ago and never marked to market, expense recoveries that leak, a tenant mix cobbled together rather than strategically assembled, and maintenance deferred until it depresses both rents and appraisals.

A neighborhood or community center failing these tests is not a bargain. A fading anchor, a thinning trade area, or rents that are low because the location cannot support higher rents add up to a value trap. A higher cap rate in that case is simply the market’s price for those problems.
 

The best retail investors look at sites as puzzles to unlock value, and institutional platforms have several ways to solve them.

Legacy leases, current rents. A great deal of neighborhood and community center retail was built in the 1990s and early 2000s, and the grocery anchors that came with it signed leases with long initial terms, often with a series of options that could extend control for decades at rents fixed near signing. Those leases are now reaching the end of their runway. A center built in 1996 has been operating on 1990s anchor economics for thirty years, and the gap between that rent and what the space would command today can be substantial. For centers of the right vintage, the next several years are an unusually good window to buy before those rents reset.

Tenant Mix. A center assembled by inertia looks different from one assembled deliberately. Healthcare has become one of the strongest sources of new demand in the format.¹³ Urgent care, dental, dermatology, physical therapy, and med-spa operators have moved steadily into open-air retail, and roughly a fifth of all leased medical space now sits in retail buildings, up from about 16 percent in 2010.¹⁴ These users sign longer leases than traditional shop tenants, they draw steady midweek daytime traffic that lifts sales for the restaurants and services around them, and much of the care they provide cannot be delivered online.¹⁵ Fitness has followed a similar path, with operators like Crunch and Planet Fitness taking backfilled boxes and bringing frequent repeat visits to centers that previously depended on the grocer alone.¹⁶ Remixing space toward these users can change both what a center earns and how durable those earnings are. It requires knowing which operators are worth the term, since a health-system-backed clinic and a local wellness concept carry very different credit.

Adding density. Centers built in the 1990s and 2000s were designed to parking standards that no longer reflect how people shop. Ratios of five spaces per thousand square feet were common in an era before curbside pickup, delivery, and ride-share. Actual parking demand at most centers is meaningfully lower today, and many municipalities have adjusted requirements accordingly, some dropping parking to three or four per thousand and some dropping parking minimums altogether. That can leave acres of usable land inside a center that already has traffic, tenants, and infrastructure. New outparcels like a drive-thru restaurant or a bank pad built on unused parking are often among the most profitable additions available to investors. In some cases, that could even include larger residential or mixed-use additions. None of this is simple: reciprocal easement agreements and anchor leases frequently carry parking covenants, and most of these projects require anchor consent, which means the work is as much legal as physical.

Operations. An institutional platform brings dedicated leasing and professional management to centers that have often been run passively, and the difference shows up in expense recoveries, renewal spreads, and how quickly vacant space is re-let. Capital spent on facades, parking, and signage raises what a center can charge and makes it more attractive to a better class of anchor. At scale, incremental improvements can compound.

Scale. Institutional capital has a clear advantage over private owners here. Individually, these are relatively small. A single center, however well run, is a concentrated bet on one grocer in one trade area. Assembled into a portfolio, the same assets become diversified across markets and anchors, financed on better terms, and sellable to a class of buyer that does not transact one center at a time. Aggregation creates value that good management at a single property cannot replicate.

Rents, tenancy, land, operations and scale all sit within an owner's control. None of them depends on cap-rate compression or a broad market rally.
 

Any case for real estate in 2026 has to answer for the macro backdrop. The Federal Reserve raised rates on September 16 for the first time since 2023,¹⁷ households are showing real signs of strain, and tariff policy remains volatile. For these centers, the effects cut in more than one direction, though mostly in their favor.

Higher-for-longer interest rates make refinancing more expensive for any owner with a loan coming due, particularly those carrying debt originated when rates were far lower. But those same rates, together with construction costs, are also why the development pipeline remains nearly empty, and that scarcity underpins much of the investment case.

The consumer backdrop is similarly two-sided, with credit card delinquencies rising, the savings rate below its long-run average, and wage growth only narrowly outpacing inflation.¹⁸ That is a real risk to any retail investment. But when budgets tighten, the shift favors the categories these centers are built around: grocery over restaurants, discount retailers over department stores, and the value formats where both stretched households and more affluent shoppers trading down now converge.

Tariff volatility rounds out the macro picture. It weighs most heavily on formats selling imported discretionary goods and least on services like haircuts, dental visits, and physical therapy, which are produced and priced locally.

The risks that would genuinely test this case are a wave of grocery bankruptcies or consolidation, which would put anchor risk back at the center of underwriting, and a consumer break severe enough to change how often households shop rather than where. Short of those, these centers do not require a strong economy. They require an ordinary one, in which people keep running the errands they have always run. That is a lower bar than most investments ask, and the source of the format’s durability.

That durability is also why neighborhood and community centers earn a place in a diversified institutional portfolio, offering income driven by daily needs rather than the e-commerce growth and household formation behind so much of the capital deployed over the past decade. Durability alone, though, is increasingly reflected in today’s pricing. The return that remains comes from buying the right centers and running them well. That opportunity sits in almost every town in America, in the centers most people drive past every day.

For further information, contact: 

David Warshawsky
Managing Director, Capital Markets
david.warshawsky@corebridgefinancial.com

Guthrie Stanback 
Senior Associate, Research
guthrie.stanback@corebridgefinancial.com