Retail Strength Has Renewed Investor Appetite for Multi-Tenant

Margaret Caldwell and Jeff Cox talk multi-tenant retail's comeback with GlobeSt

Originally published by GlobeSt

The Great Recession, the e-commerce revolution and a global pandemic constituted an unprecedented 1-2-3 punch for retail. The good news is that the much-beleaguered commercial real estate sector has bounced back, and investors are taking notice. That’s according to Margaret Caldwell, Stan Johnson Company’s Senior Vice President & Managing Director, and Jeff Cox, Managing Partner of the CRE brokerage and advisory firm and sales leader of the east region, who note the outlook, especially for multi-tenant retail’s evolution, is looking up. 

“The top trend is that in 2021 retail took off again,” said Caldwell. “Prior to and during COVID-19, retail had been quite challenged. We were seeing only a handful of bidders show up for an asset, but now there’s a significant number of investors bidding on retail properties. Additionally, pricing has returned to levels last seen in 2007, and in some cases, cap rates have been even lower than that last benchmark.” 

New investors are entering the retail market, perhaps rolling out of the multifamily or industrial sectors in pursuit of more opportunity. And institutional investors, including REITs, are active again. Caldwell reports that “huge volumes of capital are being raised and deployed for multi-tenant retail product.” 

“After what could probably be described as a deep chilling effect during the pandemic, we’re experiencing significantly more leasing and investment sales activity,” Cox added. “Rents are also increasing as vacancies are being absorbed with little to no retail development.” 

The retail sector, and specifically multi-tenant open air shopping centers, have come a long way since the Great Recession, after which “malls started to slowly fall out of favor,” according to Caldwell. Grocery anchored open-air properties have remained the bright spot in the post-downturn days. 

“Following the Great Recession, e-commerce was very much still in its infancy,” Cox said. “And we’ve all seen that its impact on the sector was significant in terms of shopping patterns, preferences and logistics.” 

Retail started to improve around 2011-2012, once challenged assets were sold off, and then settled into a new groove a couple of years later until 2020 when COVID-19 hit. After several quarters of lackluster investment activity during the height of the pandemic, multi-tenant retail has come back to life, and “there’s been a ton of growth in store sales,” said Caldwell. “We’ve seen some centers where 2021 sales increased 20% to 30% on average – this is because consumers want to shop in stores.” 

COVID-19 provided shoppers the perfect excuse to buy a significant number of items online, but post-pandemic, that reliance is waning. “We are beginning to see online sales stabilize and, in some cases, decline,” agreed Cox. “This has ultimately resulted in investors understanding the resilience of brick-and-mortar retail.” 

Cox added, “moving out of the pandemic, we’ve been encouraged that in-store shopping has rebounded. A lot of this can be attributed to the fact that retailers continue to evolve, attracting shoppers to new and different shopping venues and experiences.” 

The outlook of multi-tenant retail is bright with more and more capital getting into the investment game. Retailers are continuing to be innovative, and they’re looking for ways to incorporate experiential elements into their formats. In today’s post-pandemic environment, amenities and experiences are important to consumers, and today’s expectations will help shape the future of retail. 

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