Retail Rebound Drives Selective Conviction in Shopping Centers

Retail’s rebound is driving selective institutional investment, with only 6–10% of shopping centers meeting core-quality standards.

January 30, 2026

Valerija I.

Only 6-10% of open-air shopping center GLA is truly institutional-grade.
Occupancy rates for neighborhood centers reached 94.2%, with NOI growth accelerating post-pandemic.
Unlevered IRRs for this retail segment now surpass other core property types.
Institutional allocations to retail remain below long-term averages, highlighting selective conviction.

Key Takeaways

Retail’s Selective Comeback

Principal Asset Management reports that retail real estate is experiencing a targeted resurgence, with institutional investors focusing on open-air shopping centers that meet strict quality standards. While the sector as a whole benefits from rising tenant demand and renewed importance of physical stores, only a small portion—roughly 6–10%—of available space meets the criteria for core, institutional investment.

Fundamentals Strengthen

Open-air shopping centers have shown significant recovery since 2020. Neighborhood center occupancy climbed to 94.2% and community and power centers hover at 92.3%. Net operating income (NOI) per PSF for community centers jumped to 9.0% annual growth since 2020, outpacing the previous decade. Barriers to entry remain high as these assets now trade about 50% below replacement cost, and demand from both large and junior tenants is expanding.

Chart: Retail real estate GLA growth declined significantly after 2010 across all major formats, reflecting tightened development activity and a shift toward higher-quality, demand-driven assets.

Returns Outperform, Allocation Lags

Retail rebound in open-air shopping centers is producing unlevered IRRs above those seen in other core property segments. Still, institutional investors allocate only about 10% to retail, far below the 25% historical average. This measured approach reflects broader shifts in CRE investment strategy, particularly as cap rate repricing reshapes underwriting and return expectations across sectors. This pattern underscores a focus on quality and selectivity over broad-based investment in retail assets.

Why Selectivity Matters

For institutional investors, the retail rebound represents a compelling but narrow opportunity. Only high-quality, well-located shopping centers in strong demographic markets deliver the sustained returns and cap rate compression sought after in this asset class. In today’s market, selective conviction—rather than broad enthusiasm—remains the prevailing strategy in retail real estate.