Commercial real estate, particularly retail investments, has become increasingly attractive to investors as cap rate spreads have widened across all asset classes. Retail investments offer a compelling alternative to BBB bonds, with spreads rising over the past year. While all asset classes boast spreads below long-term trends, retail has shown significant growth. We consulted with Colliers’ experts specializing in multi-tenant and shopping center retail properties to highlight key considerations for investors and stakeholders. Charley Simpson, Senior Vice President, focuses on selling larger multi-tenant and anchored shopping centers in Southern California and across the US. Whitaker Leonhardt, Senior Vice President, specializes in anchored shopping centers and retail properties across Florida and other Southeastern states.

The Investment Mindset

Institutional investors leverage extensive data and analytics to inform their investment decisions, carefully targeting markets that align with their desired demographic profiles. They analyze tenant performance and shopping center activity to determine the optimal tenant mixes for their preferred locations and properties. Private investors increasingly focus on yield-driven returns, often prioritizing income generation over specific tenant mixes or demographics. Unlike institutional investors, they are more flexible with their criteria, allowing them to explore opportunities in smaller or secondary markets, suburban areas, and regions with lower educational attainment. This openness extends to a broader range of investment opportunities that might not attract more risk-averse institutional players.

Retail investors concentrate on growth-oriented opportunities, seeking properties with potential for expansion through vacancy lease-up, rollover rent increases, or fixed cash flow growth. Properties with flat cash flow require substantial leveraged returns to justify investment. Complicating matters, large retailers – or “box tenants” – have become increasingly demanding, seeking lower rents, limited expense responsibilities, and significant tenant improvement allowances, which limits growth potential. On the buyer side, interest has shifted to strip centers with smaller, independent tenants offering more favorable lease terms and greater growth prospects. To succeed, investors must balance rent growth with long-term tenant retention by optimizing merchandising mixes, underwriting tenants effectively, and conducting thorough financial document reviews to drive value and minimize turnover risks.

The Rise of Secondary Markets

Commercial real estate investors are reassessing their geographic priorities, moving from traditional West Coast markets to emerging regions throughout the Sun Belt and certain Midwestern markets. This strategic shift is fueled by the search for higher yields, favorable demographics in secondary Metropolitan Statistical Areas (MSAs), and these regions’ economic advantages. Investors are adopting diverse strategies; while some pursue growth markets like Florida, others take a contrarian approach to uncover hidden opportunities in areas with slower population growth.

The Investment Cycle

The retail investment landscape has recently seen institutions selling assets to private buyers, a trend expected to reverse in the next two to three years. Private investors, including funds, family offices, high-net-worth individuals, and syndicators, comprise 60-80% of buyers and are aggressively acquiring retail properties. Institutional investors are returning after a period of inactivity, seeking to deploy equity with increased flexibility. This follows the last several years of institutions divesting non-core assets in response to robust demand from private equity.

The Colliers Advantage

Given the lengthy nature of commercial real estate transactions—often six months to several years—there is a critical need for trusted advisory services beyond mere sales. Top advisors distinguish themselves through honesty, transparency, and a commitment to prioritizing client interests, ultimately driving successful results.

Case Study and Challenges

East CoastWest Coast
Whitaker Leonhardt on the Lees Promenade, Orlando, FL Deal:  Charley Simpson Crossroads Marketplace, Chino Hills, CA Deal:  
“We recently facilitated the successful sale of Lee Vista Promenade, showcasing our team’s expertise. We advised a public REIT on the disposition and assisted the buyer with financing and leasing services. This transaction showcases our ability to add value at every stage, ensuring a seamless and successful outcome for all parties involved.”  “Our team successfully transacted a prime retail asset in Chino Hills, emphasizing the appeal of unanchored strip centers. Key investment highlights include a high-visibility location near a major freeway, a strong tenant lineup, and notable buyer interest. The property, featuring 75,000 square feet of retail space, was acquired by a national REIT preparing for an IPO, surpassing the seller’s expectations and demonstrating the vibrant market for this asset class.”  
Whitaker Leonhardt on CRE Challenges:  Charley Simpson on CRE Challenges:
“The greatest challenge lies beyond our control: global capital markets, unforeseen events, and hidden property complexities. Our role isn’t to predict interest rates or market fluctuations, but to provide transparency, expert guidance, and facilitate informed decision-making, enabling buyers and sellers to close transactions successfully.”  “Southern California’s real estate market faces unsustainable pricing. High demand and competition push prices beyond feasible financing options, creating negative leverage. All-cash buyers capitalize on this environment while others struggle. In response, we’ve diversified our transaction facilitation efforts, exploring opportunities beyond Southern California’s challenging market.”

Colliers’ retail capital markets team specializes in connecting buyers and sellers of retail real estate investment properties across the US. Our experienced advisors offer tailored advice and guidance to individual and institutional investors, helping them secure the best financing options for their needs. For more information, click here.