Retail entered 2025 with a sense of cautious optimism, though success varied significantly depending on neighborhood characteristics. Following the conclusion of the first quarter of 2025, Northmarq has released detailed reports covering both single-tenant and multi-tenant retail sectors, offering a clearer picture of the market dynamics.
Starting with multi-tenant retail, the sector performed robustly in Q1 2025. Investment sales increased by 3.7%, reaching $13.1 billion, representing a 9.8% rise compared to previous periods. This growth reflects sustained investor interest in necessity-based retail centers and properties aligned with evolving consumer preferences and strong fundamentals.
Grocery-anchored centers and lifestyle centers, in particular, demonstrated notable resilience. By the end of the quarter, average cap rates for the sector stood at 7.22%, slightly up by two basis points from Q4 2024 and 18 basis points higher year-over-year. Although this change is modest, it mirrors the broader market’s gradual adjustment to elevated borrowing costs that have been rising over the past few years. Its potential for stable cash flows, strong tenant profiles, and low vacancy rates made the multi-tenant retail sector especially attractive.
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Private buyers account for 52% of the total buyer pool in this sector, while institutional investors make up 36%. These investors showed a preference for grocery-anchored centers and retail strips with high-traffic tenants. The significant institutional investment signals growing confidence in retail’s ability to endure economic uncertainties. Nevertheless, the sector faces challenges due to store closures from major retailers like Big Lots, Joann Fabrics, Party City, and Walgreens Boots Alliance, which have impacted the market.
In contrast, the single-tenant retail sector experienced a less successful start to 2025, although it showed encouraging signs of stability. Sales volume reached $3.05 billion, slightly higher than Q4 2024 but still down compared to the previous year. Cap rates increased by seven basis points from the last quarter of 2024 and by 58 basis points year-over-year to reach 6.96%.
This rise was more pronounced than in the multi-tenant sector, though the final cap rate remained lower. The average cap rate in single-tenant retail has been climbing for nine consecutive quarters, moving from 5.60% at the end of 2022 to the current level, reflecting a relatively rapid market adjustment over two years. Northmarq noted that fewer than 1031 exchange buyers were active in this space.
Private investors also played a major role here, making up 47% of acquisitions, while institutional buyers accounted for 20%, indicating somewhat less enthusiasm than in multi-tenant retail. Interestingly, international investors returned to the single-tenant market, increasing their share from 1% in 2024 to 15% in Q1 2025.
Looking ahead, the retail sector’s trajectory will largely depend on factors such as consumer spending patterns, macroeconomic conditions, and government policies. Despite some headwinds, retail real estate remains a resilient and attractive investment class. The multi-tenant segment, in particular, benefits from stable income streams and diversified tenant bases, while single-tenant properties are influenced heavily by lease terms and tenant stability.
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