Retail’s rebound: The case for selective, institutional conviction

January 29, 2026 | 2 min read

Rich Hill

Global Head of Real Estate Research & Strategy

Executive summary

In our 2026 Global Real Estate Outlook, A Cycle for Selectivity, we introduced the concept of “selective conviction” for several property types, including retail. These are sectors that have become increasingly nuanced—where risks are more differentiated, but opportunities still exist or are beginning to emerge.

Some investors have asked why we don’t have “high conviction” on retail, given that many institutional investors remain underweight the sector despite strong fundamentals and attractive recent returns. The short answer is that we are constructive on institutional-grade shopping centers. However, our analysis suggests that this opportunity set represents only ~6–10% of total gross leasable area (GLA) within the Neighborhood, Community, and Power Center universe. That limited investable footprint underpins our designation of selective conviction rather than high conviction.

In this brief report, we delve deeper into our thesis on open-air shopping centers, using the sector as a case study for our “selective conviction” framework.

On stronger footing

Retail real estate faced a so-called “retail apocalypse” that is often attributed to e-commerce, yet overbuilding was a deeper driver. Minimal new development over the past decade, combined with COVID serving as a Darwinian event, reshaped the sector. Today, tenant demand has rebounded as physical stores remain essential in an increasingly omni-channel world: ~80% of shopping still occurs in-store, and nearly half of retail executives plan moderate-to-significant investments in physical store remodels or new locations.

Strong fundamentals…

Open-air shopping centers, including neighborhood, community, and power centers, have emerged from the post-COVID period on a strong fundamental footing.

Occupancy rates have risen to 94.2% for neighborhood centers, while community centers and power centers stand near 92.3% as of 2Q25, according to the International Council of Shopping Centers (ICSC).
Net operating income (NOI) per square foot for community centers accelerated to 9.0% post-2020, compared with 2.1% from 2010–2019. Neighborhood centers increased from 4.1% to 5.7%, while power centers remain steady at 4.5%.

We expect rents and NOI to continue growing due to:

Open-air shopping centers trade roughly 50% below replacement cost, creating meaningful barriers to entry.
Expanding tenant demand, with large anchors such as Walmart, Target, and Dick’s, and junior tenants like Ross, T.J. Maxx, and Ulta increasing their footprints in community and power centers.

…And attractive returns

Unlevered IRRs for open-air shopping centers exceed those of other core property types, and leverage remains accretive. Retail has emerged as one of the top-performing property types over the past 18 months. Despite this, institutional exposure is still limited—ODCE funds allocate only about 10% to retail, compared with a historical average of 25%.

Conclusion

Retail real estate has emerged as a compelling but highly selective opportunity. While fundamentals are strong and returns attractive, truly institutional-grade properties represent only 6-10% of the open-air shopping center universe. For disciplined investors focused on high-quality assets in strong demographic markets, retail offers the potential for continued outperformance and cap rate compression—but this remains a story of selectivity, not broad-based opportunity. To read more about the retail real estate sector’s rebound, please access the full report here.

Real estate

Disclosure

Risk considerations

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