Why Open-Air Retail Centers are a Prime Opportunity For Investors
Open-air retail centers are quickly becoming one of the most sought-after assets in the commercial real estate market. For nearly two years, these centers have maintained higher occupancy rates than e-commerce warehouses, driven by limited new construction and rising demand. Institutional investors are taking notice, exemplified by Blackstone’s $4 billion acquisition of Retail Opportunity Investments in 2024, which signals strong confidence in this sector.
Why Open-Air Retail Centers Are Flourishing
The success of these centers is rooted in their adaptability to consumer preferences. Many centers are anchored by grocery stores, which generate steady foot traffic—up by 12% in 2024 compared to 2019. Surrounding businesses, such as coffee shops, salons, and medical facilities, thrive by providing services that resist online competition. Additionally, flexible work schedules contribute to increased daytime shopping in local areas.
Vacancy rates have plummeted to just 6.2%, the lowest since 2006. This limited supply has empowered landlords to increase rents as leases expire, while construction remains constrained due to high costs and rising interest rates. Retailers are also planning expansions, with major chains adding new locations across the U.S., indicating a consistent demand for physical retail spaces.
Supply Constraints Create Opportunity
Despite the robust demand, new retail construction has significantly slowed down. Throughout most of the 2000s, the U.S. saw an annual increase of 2.5% in shopping-center space. In contrast, the past decade has seen this figure drop to a mere 0.5%. Due to high construction costs and stagnant rent growth, acquiring existing centers has become more economical than building new ones, granting current landlords substantial pricing power. Green Street estimates that rents in the top 50 U.S. markets would need to increase by 65% to render new construction profitable.
This scarcity has paved the way for long-term rent growth. Open-air retail rents are projected to rise by 3-4% annually in the coming years, offering investors consistent and reliable income. Unlike other property types, retail leases are generally long-term, ensuring stability even during economic downturns.
Investor Confidence Is Rising
As more than $10 billion in open-air retail portfolios are anticipated to change hands in 2025, investor enthusiasm is on the rise. Lending conditions are also improving, with several banks now competing to finance retail transactions—an encouraging indicator for the market.
Blackstone’s recent investment is not an isolated incident. Other investors are increasingly attracted to this resilient sector, which combines stability, growth potential, and resistance to online disruption. These centers are well-positioned to capitalize on trends such as curbside pickup and in-store returns, which enhance foot traffic and lower delivery costs for retailers.
The Future of Retail Real Estate
While enclosed malls continue to struggle against online competition and rising operating costs, open-air centers are thriving by addressing the needs of today’s consumers. As flexible work arrangements and community-oriented shopping habits endure, these centers are poised to lead the retail real estate landscape.
