©buzbuzzer via Canva.com
January 7, 2025
Are ‘Unflashy’ Strip Malls and Open-Air Shopping Centers All the Rage for Retail?
With some publications heralding the return of the shopping mall to cultural prominence — whether via attending to the desires of Gen Z shoppers or through redevelopment beyond retail concerns — one thread appears to have been left somewhat unattended: the future of the humble strip mall, or open-air retail shopping center.
According to Business Insider, the strip mall is positioned for some sort of retail renaissance. The mixture of retail with other consumer destinations such as grocery stores and casual restaurants or sports bars bodes well for foot traffic, first and foremost.
As the Wall Street Journal reported, the most attractive strip malls from an investor perspective have a grocery store anchor as a primary long-term tenant. “Footfall to grocery stores was 12% higher in the third quarter of 2024 than it was during the same period of 2019, based on data from real-estate research firm Green Street,” the outlet noted.
Furthermore, the WSJ added that landlords are complementing grocery stores by renting to small retailers and independent businesses that offer services that are difficult or impossible for e-commerce competitors to replicate, including coffee shops, nail salons, medical centers, and yoga studios.
Institutional Investors Keen on Revitalizing the Strip Mall, Open-Air Shopping Center
With retail construction on something of a hiatus while new industrial warehouse construction ticks upward, existing retail space in locations formerly deemed unappealing or “unflashy” may be piquing interest with investors moving into 2025.
Making its biggest bet on retail in over a decade (since 2011, as the WSJ profiled), Blackstone purchased shopping center owner Retail Opportunity Investments in November to the tune of $4 billion — a deal that Bain Capital was reportedly also quite interested in. James Corl, head of private real estate for Cohen & Steers, spoke to this trend in a September 2024 blog post.
“Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth,” Corl wrote. “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.”
Business Insider noted that Retail Opportunity Investments owns about 90 shopping centers, with the majority having grocery stores acting as the primary anchor.
Stating that Cohen & Steers has been bullish on open-air retail in recent times, the WSJ quoted Corl as saying that “this is where America shops now” — a concise endorsement. The outlet, citing CBRE projections, suggested that a minimum of $10 billion in American open-air retail portfolios were set to change hands in 2025 alone.
“There are many open-air retail deals occurring with five to six banks actively bidding for the financing,” said Chris Decouflé, CBRE’s managing director of U.S. retail capital markets, per the WSJ. “Six months ago, there were zero banks playing unless deposits and guarantees were on the table.”
While Shopping Malls Remain Less Attractive, Possibilities for Growth Emerge
The bottom line concerning the cost of getting involved with shopping mall real estate continues to be a matter of concern for some, with air conditioning and tenant leverage over the signing of new leases being just two concerns conjured forth by the WSJ. Furthermore, malls are often populated by stores selling items of a discretionary nature — a category of consumer goods that has suffered greatly as cash-strapped consumers choose to curtail nonessential expenditures and “trade down” when it comes to preferred purchases versus necessities.
That being said, WSJ writer Carol Ryan was quick to point out a potential revitalization for mall real estate as well.
“However, malls also will become more attractive to private real-estate investors if vacancy rates continue to fall. Mall real-estate investment trusts were among the best performing real-estate stocks of 2024, according to Michael Goldsmith, an analyst at UBS. It is a sign that landlords at top quality malls are getting some power back in negotiations with tenants,” Ryan wrote.
With new building costs far outstripping current retail rents in strip malls or open-air retail centers (rents would have to increase by a whopping 65% in the top 50 U.S. markets, per Green Street data, for new retail construction to be a more attractive option), it seems that a renewed interest in the American strip mall is both warranted, and a likely eventuality, as far as investors, business owners, and consumers are concerned.
Discussion Questions
Will the “retail renaissance” pertaining to U.S. strip malls see more independent or small retailers benefit, or will chains take over the space?
Are grocery stores as anchors actually vital to the success of the contemporary strip mall in 2025, or can other retailers fill this gap? If so, which brands?
Will Gen Z actually fulfill its headlined promise to revitalize the American shopping mall, or is the traditional mall destined for redesign as a hybrid living space and shopping center?
Poll
Loading …BrainTrust
David Spear
President, Retail, OrderlyMeds
Brian Delp
CEO, New Sega Home
Melissa Minkow
Director, Retail Strategy, CI&T
Recent Discussions
More Discussions
Is Cyber Week Set To Smash Sales Records This Year, as Salesforce Suggests?
Salesforce suggests that Cyber Week will set records in terms of sales this year. Is this…Should Target Associates Be Mandated To Smile?
Target’s 10-4 plan calls for associates to be much more involved in greeting customers, as part…Will Target and ChatGPT’s Team-Up Actually Improve the Retailer’s Fortunes?
The Target app is hitting ChatGPT soon. Will it move the needle in Target’s favor?
Strip malls continue to open up in metros across North America, and many are thriving with upscale supermarkets, specialty health stores, nice restaurants, specialty retail stores, ice cream shops, boutique stores, and more, and the newer they are, the more foot traffic they attract.
Due to their convenient location in suburban areas, they provide easy access to a variety of services and shops. Often, they provide ample parking, making them more accessible to car-dependent communities. As well as catering to a variety of consumer preferences, the range of stores and dining options further enhances their appeal.
One key for success is to offer products and services not so duplicatable on ecommerce.
The downside is that thousands of older blighted strip malls still exist with empty spaces and lack of tenants. Ideally, these types of malls would be torn down and replaced with newer ones.
For 2025, the operative term for malls will be about creating “hybrid spaces.” While there’s no surefire way to revitalize aging malls, the open-air model generates growth potential. However, it won’t be the open air or the unflashy malls that will significantly move the needle this year and beyond. The key for the rest of the 2020s will be hybrid. As successful retailers intentionally introduced hybrid business model characteristics, the malls’ mother lode will also be hybrid as in mixed-use office and residential spaces, fitness centers, seasonal pop-ups, and entertainment hubs. Retail’s future is hybrid as consumers entirely redefine convenience while seeking more community-oriented constructs for socialization that are easily accessible.
Targeting the GenZ consumer with the allure of a grocery store as the anchor for a strip mall doesn’t sound like a fit to me based on life stage needs. Malls tend to attract wanderers. Strip malls pull in customers that have specific locations in mind. For strip malls to have a reason for being, they’ll need to be more creative to entice traffic. A grocery store alone likely won’t cut it.
I don’t think strip malls ever went out of favor, at least not in commercial terms. Despite the e-commerce apocalypse narrative, the vast majority of people still visit strip malls for essential needs; some come from higher-order needs. There is an opportunity to evolve the strip mall concept to make it somewhat more aspirational, but it usually needs to be anchored with retailers catering to everyday needs.
A bit of history repeating itself, don’t you think? New/improved Main Street stores and strip malls catering to differentiated experiences a shopper can’t get online makes for a compelling value prop. Doesn’t this sound like the hallmarks of genuine retail? I certainly think it does, and it’s no surprise there’s a renaissance of sorts for these shopping locales. With easy access, bright parking areas and unique offerings, consumers are responding with their wallets. Outside of online purchases for certain items, strip malls are the only stores I visit. Picking up grill pellets at my DIY store, a thick salmon filet at my fresh market, and a beer at the next-door brewery is a fun afternoon! And there are many others doing the exact same thing.
I recall a data point about the US having 5x the retail square footage per capita of any other developed nation in the world. I believe that NRF was the source of that data.
That said, it stands to reason that some retail centers and formats need to be “curated” into something else or redeveloped as a mixed use facility that includes residental and entertainment venues mixed in with retail. As a result, I’m not sure any format of existing retail centers is doomed, or not, to irrelevance. Retail is a service business, and facilities that serve the need of the community tend to survive. Others may need to be redeveloped into something fresh and new, or have a “date with the wrecking ball”. I view this as a “case by case” scenario, and “not an all examples are the same” as the article might suggest.
There are two malls near my home town- one is open air. The open air one continues to thrive while the other…does not. The open air one has seen success because it has every possible retailer Gen Z could want. Just like at a the brand level, the assortment drives demand, for malls, the quality of the tenants drive interest. I understand that grocery drives frequency, but most important factor is what stores a mall offers.
There is a nicely done open air mall near me that sounds a lot like the ideal mentioned in the article. There is a Trader Joe’s and Barnes & Noble anchoring one end, and a soon to be opened Fresh Market at the other. In between is a mix of stores (plenty for Gen X and Alphas) and service providers.
It’s interesting to note that this center has also turned over the majority of tenants since it opened 20 years ago; out with the standard indoor mall retailers and in with those typically found in strip centers.
The advantage of this center versus an enclosed mall is the ability to park in front of the stores you wish to visit. The disadvantage is we are in Chicago where it is as miserable to shop outside in the winter as it is in the summer.
Whomever runs it doesn’t fully grasp how – and how often – to run events so I wouldn’t call it a community center. It is what it is: a nice combination of stores, services with restaurants around the perimeter. It’s definitely not the new Main Street. And that is a missed opportunity.
Most (or all) strip malls are ugly eyesores, and there are so many of them that it is difficult for me to understand why existing malls cannot be repurposed with some kind of beautification effort as opposed to just building a new one somewhere else.
The move to work/live/shop spaces is interesting, and the long term vibrancy of these developments will, once again be determined by the market, as in how many people really want to live/work/shop in the same general area?
The revitalization of strip department shops and open-air buying facilities provides a thrilling opportunity for shops and investors alike. As someone with vast experience in retail approach, merchandising, and customer conduct, I see this fashion as a strategic reaction to evolving purchaser alternatives and economic realities.
Key Drivers of Open-Air Shopping Center Growth:
Grocery Stores as Anchors: Open-air centers anchored by using grocery shops provide a consistent move of foot site visitors, making them notably attractive to tenants and traders. My work with grocery stores has proven how these anchor tenants force ordinary middle overall performance.
Cost Efficiency: With new retail creation charges skyrocketing, the value of repurposing current areas turns into plain. This aligns with my enjoy in optimizing retail spaces to decorate profitability and operational efficiency.
Adaptability: Open-air buying facilities allow for more flexibility in tenant mixes, growing opportunities for experiential retail, network occasions, and dad-ups. I’ve located firsthand how revolutionary vending techniques and innovative tenant curation can remodel retail areas into vibrant community hubs.
Opportunities for Retailers and Investors:
Enhanced Tenant Mix: By specializing in a mix of crucial services (grocers, healthcare, and fitness) and non-discretionary retail, buyers can create resilient purchasing facilities that cater to the extra price-aware consumers.
Leveraging Consumer Trends: Open-air facilities align with modern patron alternatives for convenience, accessibility, and outside spaces. As someone with a history in customer support and courting building, I apprehend the significance of creating inviting areas that meet client desires.
Localized Strategies: Retailers and investors need to tailor services to the demographics of the encircling community. My experience in across diverse markets, from large-container shops to boutique grocers, underscores the importance of localized strategies in driving purchaser engagement and loyalty.
Challenges to Address:
Competing for Tenants: While vacancy costs are falling in amazing shops, strip department shops and open-air centers ought to compete for top tenants. Strategic partnerships with providers and brokers can assist secure rentals that upload lengthy-term price.
Navigating Financing Dynamics: With banks showing renewed interest in financing retail offers, know-how the economic landscape is vital. Collaborating with experienced consultants can assist navigate those complexities.
In precis, the resurgence of strip department stores and open-air purchasing facilities is more than a transient trend—it’s a mirrored image of moving customer behaviors and economic pragmatism. Retailers, buyers, and stakeholders who adapt to these adjustments with modern, patron-centric strategies will be properly positioned to thrive on this evolving landscape.
Yes, strip malls are one branch of retail which, given the right mix, allow their tenants to grow, be successful and thrive. They need the right retailers for the specific location for this to happen. It is also important that landlords recognize that the days of the monsterous department store mall are well over. The attraction to the strip mall, and to its future, depend on how they compete against online retailers, and what retail mix they offer to the local community.
The beauty of a strip mall is that you don’t need to be drawn to every store to visit. Grocery stores will likely remain essential anchors, drawing in people while adding value for anyone already visiting. Businesses offering services like yoga studios and nail salons will always attract foot traffic – especially since e-commerce can’t easily replicate them. The key is ensuring these businesses stay relevant and aligned with customer expectations.