Retail real estate has flipped the script on the so-called “retail apocalypse.” Instead of fading, brick-and-mortar retail is thriving. It is fueled by a lack of new supply, booming demand from value-driven and experiential tenants, and shoppers who still crave the convenience of in-person visits.

 

Investment is gaining steam, especially in essential and urban retail. While financing remains pricier than multifamily and on par with industrial, strong tenant demand and limited space give landlords the upper hand. The result? A resilient, opportunity-rich sector primed for smart capital plays.

 

From “Apocalypse” to Revival

The Shifting Narrative of Retail Real Estate

In the early 2010s, headlines of a “retail apocalypse” dominated the media, a dramatic, often exaggerated narrative forecasting the extinction of brick-and-mortar stores. Although the term first appeared in the ’90s, it gained real momentum around 2017 as household names like Aéropostale, American Apparel, and Sears shuttered hundreds of locations amid bankruptcy.

 

E-commerce was labeled the main reason. The so-called “Amazon effect” drove double-digit online sales growth (11%-20%) during the holidays, while physical department stores reported sharp declines (4.8%). Meanwhile, malls were overbuilt, growing at twice the rate of the population from 1970 to 2015, leading to declining foot traffic and empty storefronts. Add in a shift toward experience-driven spending, a squeezed middle class, and retailers crushed under bad management and heavy debt, and the stage was set for panic.

 

By 2015 there was a massive oversupply of retail…the culprit of the negative outlook on retail was brought on by oversupply more than anything.

 

But the narrative wasn’t just reactive–it reshaped the market. Developers pulled back. Lenders got cold feet. New construction ground to a halt. What was seen as a sector in decline was one of the most supply-constrained asset classes in CRE.

 

The amount of leasing did not outpace the amount of deliveries… lenders were afraid of non-major brand gyms or furniture stores filling big-box vacancies.

 

Today, that very supply crunch is fueling retail’s resurgence. Industry professionals have since challenged the apocalypse myth, showing that consumer demand remained more stable than expected. As department stores faltered, dollar stores and discounters filled the gap. Contrary to the media headlines, retail didn’t die–it evolved. And that evolution set the stage for today’s revitalized, investment-worthy retail landscape.

 

The Data Behind the Comeback

Between 2010 and 2020, U.S. retail sales surged by 42%, while new supply ticked up just 4%. That imbalance tells the story of a sector that learned to do more with less by maximizing productivity within existing footprints and dramatically boosting sales per square foot.

 

Since 2018, deliveries have dropped to less than 25 million square feet annually–down from 300 million annually between 2000 & 2009. Since COVID, it’s averaged around 15 million.

 

Since the pandemic, physical retail has not just recovered, it’s surged past pre-COVID levels in many markets. In-person visits to retail and dining venues are booming, while e-commerce has cooled from its pandemic spike, reverting to a steadier, long-term growth trend. This points to a durable omnichannel environment rather than a digital takeover.

 

The Supply Crunch That’s Fueling Strength

New retail construction remains historically restrained, squeezed by high financing costs and rising construction expenses. In Q1 2025, only 44.8 million square feet were under construction nationwide, and just 7.2 million square feet were delivered. For grocery-anchored centers, 2024 marked the second straight year of sub-100,000 square feet in net deliveries–down sharply from the 1.1 million annual average between 2015 and 2019.

 

Low supply… 15 million annual deliveries now vs. 300 million in the past–is what’s defining today.

 

This prolonged slowdown in development has led to record-tight vacancy. The national retail vacancy in Q1 2025 stood at 4.2%, just 10 basis points above year-end 2024. The squeeze is a direct result of limited new supply and tenants right-sizing their physical footprints rather than abandoning them.

 

Yes, Q1 2025 saw the weakest absorption since the pandemic began at -3 million square feet. At first glance, this could signal a downturn. But paired with near-record-low vacancies and historically limited availability, the data tells a different story.

 

The negative absorption reflects strategic pruning, struggling legacy retailers exiting inefficient space, rather than waning demand. And backfilling is swift: nearly one-third of new leases in Q1 were signed within five months of listing, with most vacant spaces released shortly after. This isn’t a collapse. It’s a healthy churn, as better-positioned, modern tenants replace outdated ones.

 

The New Face of Retail

While legacy department stores like Sears, JCPenney, and Macy’s struggled under oversized footprints, shifting consumer preferences, and heavy debt, the broader retail sector evolved. Macy’s plans to close 150 stores by year-end 2025, and JOANN Fabrics is shuttering all 800 locations—emblematic of the big-box retreat. But the space they leave behind isn’t staying vacant.

 

Retail has changed post-COVID. Big indoor malls are being demolished or converted into multifamily. Outdoor formats and experiential projects like American Dream in NJ are gaining traction.

 

Instead, a wave of vibrant new tenants is redefining what retail looks like. Today’s retail ecosystem revolves around value, necessity, and experience. Experiential concepts are drawing crowds with offerings that can’t be digitized. But the focus has shifted from theatrical spectacles to delivering an efficient, enjoyable shopping experience.

 

Who’s Thriving?

Value retailers are expanding rapidly, fueled by inflation-conscious consumers and abundant real estate opportunities. TJX Companies plans to open 1,900 new stores globally, with 130 net new openings this year. Burlington is capitalizing on big-box bankruptcies, while dollar stores are capturing more post-pandemic foot traffic by expanding fresh food options and merchandise variety.

 

This results in steady leasing, where TJX, Burlington, and Tractor Supply are backfilling old Big Lots and JOANN’s.

 

Essential retail–grocers, pharmacies, and superstores–continues to anchor the sector. These tenants proved indispensable during the pandemic and remain highly resilient. Grocery-anchored centers are investor favorites thanks to dependable foot traffic and low vacancies. Aldi led the charge in 2024, adding over 2.3 million square feet and targeting 800 new stores by 2028. Publix, H-E-B, Sprouts, and Trader Joe’s are all ramping up growth in strategic markets, reinforcing a structural shift: today’s anchor tenants are no longer department storesthey’re essential, value-driven, and disruption-resistant.

 

Smaller, Smarter, Stronger

Even traditional players are reinventing themselves. Macy’s is rolling out small-format stores that emphasize apparel and beauty while leveraging omnichannel features. After a decade of physical contraction, Barnes & Noble is now in expansion mode, planning 60+ new stores in 2025 after opening 57 in 2024. Many are returning to former locations with a hyperlocal strategy and renewed focus on community engagement.

 

Capital Allocation

Why Retail is Earning Investor Attention

In Q1 2025, retail investment volume jumped 13% year-over-year to $9.8 billion, fueled by a surge in transaction activity and larger deal sizes. Grocery-anchored centers led the charge, attracting four times more institutional capital than a year ago, while high-street urban retail saw renewed interest through targeted acquisitions.

 

It’s not truthful to say retail lending is any better than two years ago. Creativity is key to finding retail loans for certain owners.

 

The Macro Tailwinds

Retail’s performance is closely tied to a strong labor market and resilient consumer spending. In FY 2024, the U.S. unemployment rate averaged just 3.9%, with over 7.2 million jobs created since March 2020. The National Retail Federation projects 2025 sales growth between 2.7% – 3.7%, due to continued wage growth and historically low unemployment.

 

But this labor strength is a double-edged sword. With payroll often making up around 20% of gross revenue for general retailers, rising wages can squeeze profit margins. For retail landlords and lenders, that means assessing not just demand, but tenant durability in a tightening labor market.

 

Low unemployment drives spending, but it also raises payroll costs. For retailers, that’s a real operational challenge.

 

Retail demand is also following demographic and economic shifts. As people continue to migrate from high-cost coastal markets to more affordable regions in the Sunbelt and Intermountain West, retail space per capita is shrinking in high-growth areas and rising in those seeing population loss.

 

Major economic development projects further tilt the balance. Intel’s $28 billion chip plant in Central Ohio, expected to generate 10,000 jobs directly and tens of thousands more indirectly, is just one example of how large-scale job creation drives retail demand in emerging markets.

 

Retail vs Multifamily & Industrial

A Capital Markets Reality Check

Despite retail’s solid fundamentals, the capital markets haven’t fully recalibrated. Financing terms for retail assets remain less favorable than those for multifamily–and on par with industrial. As of May 2025, multifamily loans typically feature lower interest rates (5.49% for 5-year fixed terms over $6M) and higher LTVs (up to 80%). Retail loans, by comparison, average 6.86% with max LTVs of 75%, similar to industrial.

 

Population Growth & Economic Catalysts Fuel Geographic Shifts

Debt Service Coverage Ratio (DSCR) requirements further differentiate the risk profile. While 1.20-1.40 is standard, lenders often require 1.30-1.50 for retail, effectively capping loan proceeds even when LTV thresholds are met.

 

STNL

Stability Meets a Shifting Rate Environment

With long-term leases and creditworthy tenants, these properties are seen as safe, steady investments, especially in uncertain economic times. It’s no surprise that vacancy rates in key necessity-based STNL categories like fast food, supermarkets, and convenience remain exceptionally low, ranking from just 1.0% to 3.7% as of early 2025.

 

Yet even with those strong fundamentals, financing STNL deals isn’t what it used to be.

 

While investors continue to acquire STNL assets, the lending math has gotten trickier. Interest rates have climbed faster than cap rates, introducing a dynamic known as negative leverage–where borrowing costs (6%) exceed the asset’s return (5% cap rate).

 

The result? Compressed or even negative cash-on-cash return in the short-term, despite the long-term quality of the asset.

 

Retail loans on single tenants are not better than two years ago. The loans are smaller because the rates are higher… Most of the stuff being done is 1031 cash.

 

This financing squeeze is why many investors say today’s loans aren’t “better than two years ago.” It’s not about the asset–it’s about the cost of capital.

 

Cap rates have responded to rising interest rates, but not fast enough to offset the higher cost of debt. In Q1 2025, multi-tenant retail cap rates averaged 7.22%, up 18 basis points year-over-year. STNL cap rates rose more significantly, up by 58 basis points to 6.96%, continuing a steady nine-quarter climb from their post-pandemic low of 5.60% at the end of 2022.

 

Still, investors remain committed to STNL. Even with thinner immediate returns, these assets offer long-term security and inflation protection, especially when backed by high-credit tenants. Lenders continue to support the sector as well, seeing STNL as a lower-risk asset class, which helps sustain liquidity in the market. Combined with limited new development and rising replacement costs, existing STNL properties are well-positioned to hold value and even appreciate over time.

 

Why Capital Terms Lag

Retail’s financing handicap is rooted in history. The sector still carries the stigma of the 2008 financial crisis and the “retail apocalypse.” Between 2008 and 2021, banks with CRE-heavy portfolios were nearly three times more likely to fail than peers. In response, regulators tightened risk standards, and lenders became more cautious.

 

Meanwhile, multifamily enjoys systemic support: Fannie Mae and Freddie Mac back more than 40% of all multifamily loans, de-risking the space and enabling friendlier capital terms. Industrial has benefited from e-commerce tailwinds, with demand for logistics and warehouse space seen as a long-term secular trend.

 

Retail, in contrast, lacks government guarantees and remains weighted down by its past, even if fundamentals tell a different story. Until capital markets fully digest the sector’s transformation, retail will continue to attract capital–just not always on equal terms. That said, record-low vacancies and sustained leasing velocity are prompting a growing number of lenders to revisit the sector. Particularly in neighborhood and strip center formats, where service-oriented shop tenants are viewed as stable or easily backfilled, capital availability is improving and financing is becoming more accessible across the retail spectrum.