After years on the sidelines, institutional investors are rediscovering retail real estate. The sector—long overshadowed by multifamily and industrial properties—is experiencing a renaissance driven by an undersupply of new space.
"The appetite of capital has come back to retail,” says Ryan Byrne, EVP and managing principal at SRS Real Estate Partners. “Investors have been sitting on the sidelines for a while, and retail has better returns than other asset classes.”
Byrne, who recently joined SRS to lead the South Central region for its National Multi-Tenant Advisory team, is part of a growing leadership bench at the firm. SRS has also expanded its capital markets capabilities with the addition of John Darrow, who now leads its Debt & Equity team.
For the past five to seven years, capital has flooded into industrial warehouses and apartment buildings while retail was largely ignored. Annual retail construction averaged just 0.5% of inventory from 2009 to 2024, the lowest rate among major property types. Now the tables have turned decisively in retail’s favor.
The Math Favors Retail
The shift is showing up in capital flows. In 2024, retail captured 27% of investment sales volume across major property sectors, up from roughly 20% before the pandemic. Lending activity has surged as well, with retail’s share of CMBS issuances climbing to nearly 26% in 2024 from 21% in 2019.
Retail’s appeal is straightforward. The sector delivers stronger returns than competing property types. Byrne estimates that retail properties typically sell at cap rates that are roughly 100 basis points higher than similar properties in the multifamily space.
“Developers built multifamily or industrial because that’s what got you top dollar,” says John Darrow, EVP and managing principal with SRS. “But when rates started to run up, it just didn’t pencil anymore.”
With the recent decline in interest rates, retail investors are once again able to secure financing in the mid-5% range. This pricing creates roughly 150 basis points of positive leverage for retail assets trading around 7% cap rates, allowing investors to achieve attractive cash-on-cash yields even with conservative underwriting.
By contrast, similar leverage dynamics are absent in the multifamily sector, where cap rates remain at or below 5%. As a result, new acquisitions often fail to pencil without aggressive rent-growth assumptions or elevated leverage, underscoring retail’s relative value in today’s environment.
Regional Advantages
Retail’s strength is most pronounced in the Southeast and South Central regions, which have experienced the nation’s fastest population growth this decade. When someone relocates from a high-tax state, Byrne notes, “that allows [them to have] a lot more disposable income where people can go spend and shop.”
These markets have historically underbuilt retail comparatively, and the vacancy rates reflect that: Tampa sits at 3.0%, Miami at 3.2%, Atlanta at 3.7%. Research Triangle Park in North Carolina reports just a miniscule 0.7% vacancy rate.
“If you look at where the homebuilding has been, there’s a natural progression of where the retail is going to be,” says Darrow. “Once people move in, they need their neighborhood retail, their shopping centers.”
Adaptation and evolution
Retailers are becoming more flexible, adapting their footprints and tenant mix in response to shifting consumer behaviors. Younger consumers, particularly Gen Z, socialize differently than previous generations, favoring fitness and experiential gatherings over bars. That’s driven landlords to repurpose big-box vacancies for pickleball courts, boutique gyms and entertainment concepts that serve as community gathering spaces.
“Tenants are getting creative on the size and layout to make sure they get the right location,” Byrne says.
With vacancy rates at historic lows and financing costs declining, institutional capital is finding its way back to retail. “There’s a lot of really good opportunities and money to make in the future,” Byrne adds.
Visit SRS Real Estate Partners at ICSC NEW YORK, booth 435 on level 3.
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