Strip Malls Might Be the Hottest New Thing in Commercial Real Estate

• Investors are seeing new value in the strip mall.
• A lack of supply and an uptick in in-person neighborhood shopping has increased their value.
• One commercial real estate investor called the opportunity a “retail renaissance.”

Strip malls, of all things, appear to be trending up.

After decades of decline brought on by the rise of large box stores, e-commerce, and the pandemic, the humble and sometimes derided neighborhood shopping center had long been on the outs. Many retailers shifted focus, buying and building large fulfillment warehouses instead of storefronts.

That’s led to a perhaps surprising shift, according to The Wall Street Journal: There is now a dearth of supply of convenient neighborhood shopping centers, and that is driving up the value of existing ones.

Large investors like Blackstone have noticed and are now betting on the lowly strip mall. Blackstone spent $4 billion in November to acquire Retail Opportunity Investments, which owns about 90 shopping centers, most of them anchored by grocery stores.

Blackstone President Jon Gray said at the time that he believes the extreme distress the commercial real estate market has faced in recent years is beginning to ease up. He now sees opportunity in the sector.

“If you were an investor in real estate after the financial crisis, you would have made a lot of money. And my guess is, if you’re an investor today, the same thing will happen,” he said at an event hosted by Goldman Sachs.

Beyond just the value driven by scarcity, an uptick in in-person shopping also bodes well for the shopping center. Foot traffic to grocery stores was 12% higher in the third quarter of 2024 compared to the same time in 2019, before the pandemic, the Journal reported. And there are many small businesses that still attract IRL shoppers, like coffee shops and nail salons. Flexible work schedules are also allowing residents to take quick shopping trips nearby.

James Corl, head of New York-based private real estate group Cohen & Steers, wrote in a September blog post that the investment market for open-air shopping centers amounted to a “retail renaissance.” Corl’s firm bought a fully leased outdoor shopping mall in San Mateo, California for $127 million last month.

“Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth,” Corl said in the blog post. “We believe that a durable acceleration in earnings growth combined with relatively high current yields will propel shopping center investment performance for some time, a reality that the market has yet to fully recognize.”