No Anchor, No Problem: Unanchored Strip Center Report
Unanchored strip centers—those smaller, convenience-driven retail properties ranging from 10,000 to 50,000 square feet—are stealing the spotlight in 2025. They might not have a big-name grocery chain or anchor tenant, but they’re more than holding their own. With tight retail supply and resilient consumer spending, these centers are commanding high occupancy, steady rent growth, and increased investor interest. Once seen as a secondary retail type, their adaptability, neighborhood-focused tenant mix, and ability to handle turnover with ease have redefined them as dynamic, core retail assets. This report breaks down the numbers behind this transformation, analyzing performance from coast to coast.
Performance Overview
Consumer Spending Fuels Growth
The overall outlook for retail in 2025 is positive, supported by resilient consumer spending, easing financial pressures, and productivity gains. With job growth and rising wages continuing to put money in shoppers’ pockets, consumer spending, the lifeblood of retail, is strong despite uncertainties in the market.
The Metrics: Occupancy and Rent Growth
Proving that you don’t need a heavyweight tenant to be a heavyweight contender.
Retail space is hard to come by in 2025, with national vacancy at historically low levels, around 4% to 5%. Unanchored strip centers, while slightly trailing their grocery-anchored counterparts, average a 4.5% vacancy rate. Occupancy at unanchored strip centers is holding steady and likely contributing to the overall tightness in the market. Power centers see a vacancy rate of 4.3% and enclosed malls 8.7%.
Unanchored strip retail resilience stems from a few key strengths:
• Demand for high-quality retail space that far exceeds supply
• Resilience of service-oriented and local businesses
• Flexibility to accommodate a diverse tenant mix
In today’s constrained development environment, where limited new retail construction is coming online, existing unanchored strip centers are well-positioned to capture demand and maintain high occupancy.
These same fundamentals are fueling steady rent growth. The average asking rent for strip centers rose from $17.10 in Q1 2019, to $20.85 in Q2 2025, a clear signal of the value tenants place on visibility, convenience, and accessibility. With landlords in a strong position amid elevated occupancy and limited competition, unanchored centers are expected to meet or slightly exceed the projected 2% national retail rent growth rate for 2025.
Taking Center Stage
Investment Momentum Builds
Investor interest in unanchored strip centers has reached new heights. At the heart of their appeal is the relatively low acquisition cost, steady cash flow, and flexibility to adapt leasing strategies to local demand. While private investors have long dominated this space, institutional capital is increasingly entering the fold. Large funds and institutions are drawn to the sector’s straightforward investment and potential for scale, particularly in today’s yield-constrained environment.
A growing focus on value-add opportunities is further fueling momentum, as investors seek to unlock upside through improved management, strategic leasing, and targeted renovations. Many of these assets, historically held by private owners, offer room to reposition rents, optimize tenant mixes, and enhance operational efficiency, better positioning them for revenue growth and broader investor appeal.
Data shows that cap rates for unanchored strip centers in Q2 2025 average:
• Class A: 6.9%
• Class B: 7.2%
By contrast, grocery-anchored retail centers show slightly lower cap rates in Q2 2025:
• Class A: 6.1%
• Class B: 5.4%
This shift is supported by cap rate trends that suggest healthy return expectations. As of H2 2025, cap rates for unanchored strip centers average 7.0%. These yields remain generally higher than those for grocery-anchored centers, which average 5.7%, reflecting both the slightly higher perceived risk and the value-add potential unanchored centers offer. Many investors are capitalizing on this spread by pursuing active management strategies to boost NOI through improved leasing and repositioning efforts. These assets are increasingly viewed as stable alternatives to other asset classes such as office and multifamily, where returns may be compressing in many markets.
However, the segment is not without nuance. Some unanchored centers, particularly those overlapping with categories like freestanding retail or housing vulnerable tenants such as pharmacies and discount retailers, may face short-term challenges. Closures and consolidation in these categories could temporarily raise vacancy rates, primarily in centers with concentrated exposure. Yet, landlords able to backfill with more resilient, service-oriented tenants often see limited disruption.
Retail’s Quiet Climbers
Trends in the Unanchored Space
Resilience of Local Businesses
Small, entrepreneurial “mom-and-pop” tenants continue to be a stabilizing force in unanchored strip centers. Their strong personal investment, adaptability, and long-term commitment make them reliable and valuable tenants.
Rise of Experimental and Service-Oriented Retail
Fitness studios, salons, medical clinics, and diverse restaurants are increasingly occupying space, reflecting consumer demand for convenience and in-person services less vulnerable to e-commerce disruption.
Omnichannel Integration
Retailers are leveraging unanchored centers as key touchpoints for e-commerce fulfillment—facilitating in-store pickups, returns, and last-mile logistics. These centers help bridge online and physical retail in a consumer-centric way.
Regional Deep Dive: Standout Markets of Unanchored Strip Retail
West
Rebounding with strong, urban core demand in H1 2025
• Los Angeles: $239M
• San Diego: $235M
• Seattle: $110M
• Vegas: $100M
Southwest
Stable growth with high pricing resilience in H1 2025
• Dallas: $324M
• Houston: $175M
• Phoenix: $120M
• Denver: $113M
Midwest
Stabilizing, but still in early recovery
• Chicago: $334M in 2024, $93M in H1 2025
Northeast
Pricing in strength returns amid cautious optimism
• NYC: $336M in 2024, $70M in H1 2025
• Boston: $155M in 2024, $48M in H1 2025
Mid-Atlantic
Reacceleration led by D.C. and institutional capital
• D.C.: $212M in 2024 (3x 2023), $100M in H1 2025
Southeast
Consistently leads in volume and momentum throughout H1 2025
• Nashville: $111M
• Lexington: $137M
• Jacksonville: $113M
• South Florida: $100M
• Atlanta: $157M
• Tampa $131M
Regional Deep Dive: Mid-Atlantic
The Mid-Atlantic unanchored strip center market entered a transitional phase in 2024, showing signs of recovery after a volatile few years. Total transaction volume reached $494 million for the year—a 6% increase over 2023—fueled by a dramatic 925% surge in portfolio sales, even as individual deal volume declined 11.5% year-overyear. Despite a soft pricing environment in late 2024, with the average price per square foot dropping to $139 and cap rates rising to 9%, the market gained traction heading into 2025. In the first half of 2025, volume reached $243 million and pricing rebounded sharply to $219 per square foot, indicating a flight to higher-quality assets.
According to Ed Laycox, EVP of Single & MultiTenant Retail at Matthews™, the Mid-Atlantic remains “a premier investment geography for any investor type,” owing largely to strong demographic trends. “The robust population growth in Virginia and the Carolinas has only fueled the investment appetite more,” he explains, noting that REITs, private equity firms, and family offices have all been especially active.
The D.C. Metro and Secondary Market Dynamics
In 2024, performance was led by the D.C. metro, which posted $211.8 million in volume–more than tripling its 2023 total and making it the clear focal point for regional investor interest. Laycox attributed the sharp pricing rebound in D.C. largely to replacement cost dynamics. “The cost to construct a new space for a tenant is very prohibitive in today’s market–the D.C. market in particular,” he says. “When you can buy a center 50-60% below replacement cost and still get a market cap rate, your future downside is limited.” This affordability relative to new construction is also helping drive retail vacancy rates in unanchored strip centers to all-time lows.
Richmond also emerged as a bright spot, matching its prior peak with $52 million in volume. Meanwhile, markets like Philadelphia and Baltimore saw pullbacks, and Pittsburgh, Harrisburg, and Norfolk remained relatively muted.
Small investors are moving to secondary markets of the Mid-Atlantic, chasing yield and lower price per square foot.
Early 2025 data shows the D.C. metro leading the region with over $100M in transactions year-to-date, while Philadelphia is growing with $65M already transacted in H1 2025, already above 2024 volume.
Shifting Capital Composition and Tenant Demand
The capital composition of the market also began to shift. Institutional investors, after net selling nearly $97 million in 2024, returned in force in early 2025 with $55.7 million in net acquisitions— signaling renewed confidence in Mid-Atlantic retail opportunities. REITs were also active buyers in 2024, posting their largest net inflow in over a decade at $65.2 million. However, they have yet to record any deal activity in early 2025, suggesting a strategic pause or wait-and-see approach. As Laycox puts it, “the REIT and institutional investors are focused on the growth markets as they view these areas as opportunities for rent growth.”
Laycox also notes a significant shift in tenant mix and demand patterns across the region. Big and medium-box spaces are increasingly being filled by experiential retailers and medical users such as “kids’ play concepts, bounce zones, urgent cares, and outpatient surgery centers.”
Asset Performance: Urban Infill, Suburban, and Value-Add
Urban infill and suburban strip centers are performing well across the region, buoyed by the replacement cost advantages and tenant demand trends Laycox highlights. However, he points out that value-add opportunities are rare.
Because retail vacancy is low just about everywhere in the Mid-Atlantic, finding a value-add investment is VERY difficult. The ones that are out there generally have some challenging issues or are priced too high—or both.
Altogether, these trends point to a market in the early stages of reacceleration, with institutional and private capital leading the way and investor sentiment steadily improving.
Regional Deep Dive: Midwest
The Midwest unanchored strip center market began showing signs of stabilization and recovery in the second half of 2024, following a two-year slump from the post-pandemic peak. After substantial yearover-year declines through 2023 and early 2024, quarterly sales volumes rebounded sharply–up 50.4% YOY in Q3 and 82.9% in Q4. The year ended with $986 million in total sales, primarily driven by individual asset trades, which comprised more than $950 million of the total. As of H1 2025, $517 million in deals have traded. According to Patrick Forkin, SVP at Matthews™, this surge is “a strong signal that buyer confidence is returning,” underscoring a shift in market sentiment.
While transaction activity is on the mend, the market remains well below its 2022 peak of $1.75 billion. Still, pricing trends are encouraging. The average price per square foot is $145 as of H1 2025, and Class A assets record $310/SF, reflecting a clear flight-to-quality. Cap rates rose to 8.2% in Q4 but decreased to 8% as of Q2 2025. Forkin explains that while these elevated cap rates “reflect continued risk pricing, they’re also driving interest from yield-focused private buyers who dominate the region.” He notes that bid-ask spreads are narrowing and that “high-quality deals are moving,” especially in core cities like Chicago, Milwaukee, Indianapolis, and St. Louis. While the cap rate spread between premium and value assets has widened, the volume and pricing data suggest growing buyer appetite, particularly for well-located or stabilized properties.
Supply Constraints and Owner Behavior
The region’s inventory remains tight, largely due to the ownership profile. “The majority of these properties are privately owned by long-term holders who aren’t under pressure to sell,” Forkin explains. “When sellers believe they’re in a strong pricing window, they’re realistic and ready to transact. Otherwise, they’re comfortable holding for longer.” This dynamic has kept competition strong for quality assets and limited the flow of new listings to the market.
Leasing Momentum Driven by Services and Restaurants
On the leasing front, service-oriented users have taken the lead. Forkin highlights tenants like medical, dental, urgent care, pet services, salons, and fitness centers as the primary drivers of demand. “These tenants are prioritizing visibility and accessibility over co-tenancy with a traditional anchor,” he notes. Additionally, restaurant demand has increased, with fast casual and local operators expanding in suburban locations offering patio space and drive-thru capabilities.
National credit tenants are still active, but the real change has been the rise of experiential and neighborhood-serving users over traditional soft goods.
Private Capital Leads, Institutions More Selective
ate investors have carried the momentum through the downturn and into the early stages of recovery, accounting for nearly 90% of volume in 2023 and 2024. Institutional and REIT buyers, while still present, have become more selective. “Capital hasn’t disappeared—it’s just more selective,” Forkin says, pointing to continued interest in large metros like Chicago and Minneapolis. He emphasizes that institutional capital is still drawn to the Midwest’s value proposition: “Cap rates here are often 100 to 150 basis points higher than in the Sunbelt or on the coasts.”
However, he also notes that many assets in the region are smaller and individually traded, which “doesn’t always match the acquisition strategies of larger institutional players.” Cross-border capital, once a small but steady contributor, has almost entirely exited the market since 2020. If private capital continuous to lead and macro conditions stabilize, the Midwest strip center market is well-positioned for a more sustained recovery in the second half of the year.
Suburban Strength and Urban Challenges
Suburban strip centers are currently outperforming. “Suburban centers with strong demographics and daily-needs tenants are leading in terms of performance and liquidity,” Forkin affirms. These assets typically offer features like ample parking, high visibility, and flexible layouts—ideal for today’s tenant base.
Urban infill assets, while still appealing for their long-term potential, face more immediate headwinds. Forkin cites reduced office occupancy, rising taxes, and population outflows in some cities as contributing factors to softened demand. “Several headwinds have impacted performance in recent years,” he notes, even as these assets maintain strategic value in dense, high-barrier markets.
Focus on Stabilized and Light Value-Add Plays
New construction remains limited, keeping investor focus on stabilized or lightly value-add assets. “Most investor activity is focused on centers where there’s upside through lease-up, renewal, or modest cosmetic improvements,” Forkin observes. The common thread? “The ability to support modern tenancy needs is key.”
Regional Deep Dive: Northeast
In 2024, the unanchored strip center market in the Northeast began a clean and measurable recovery after a turbulent 2023. Total transaction volume for the year reached $576.7 million, up 12.9% year-over-year, with a particularly strong Q4 showing $171.2 million, a 43.2% YOY increase.
This rebound was driven largely by individual property sales, which totaled $526 million for the year–up 15.5% YOYwhile portfolio activity remained limited, accounting for just $50.7 million. In 2025, pricing strength returned. approximately $206.3 million in deals traded in the first half. While the average price per square foot increased to $201 in Q2, up 4.5% YOY and 16.4% above year-ago levels.
Confidence among Northeast buyers remains strong despite modest growth, as investors pay premiums for high-quality, well-located centers. Joanna Manfro, Vice President at Matthews™ explains,
Confidence stems from the Northeast’s historical resilience in all economic climates, often acting as a ‘flight to safety’ during turbulent markets.
She notes that market downturns in the region tend to be less severe, often followed by quicker recoveries compared to trend-driven areas. This consistent historical performance continues to support buyer optimism, even amid broader economic uncertainty.
Strength in Leasing and Pricing
Following a strong finish in 2024, investor activity remained measured but focused in the first half of 2025. While overall transaction volume moderated, particularly in Q2, the market continued to reflect a selective but steady flow of capital targeting high-conviction opportunities. A total of 34 properties traded in H1 2025, with the majority occurring in Q1, underscoring a continued appetite for quality assets despite macro uncertainty. Cap rates held firm at 7.3%, unchanged from the prior year, suggesting sustained competition and disciplined pricing.
Leasing fundamentals across the Northeast continue to support firm pricing. “The Northeast’s high barriers to entry and consistent demand generally support higher PPSF,” Manfro notes.
She points out that while rent growth may be steady rather than rapid, the region’s lower risk profile and historical stability “justify the pricing for many investors,” helping to sustain elevated values.
Early 2025 Momentum and Buyer Trends
Looking into early 2025, momentum has continued, though at a more tempered pace. Investor appetite remains active, with private capital continuing to drive most activity. However, Manfro states that the buyer pool is broadening. “There’s increasing cross-regional interest, notably from California investors seeking stability amidst their market dynamics,” she says. “Some Southeast investors are also evaluating the Northeast for slightly better yields,” viewing the region as less competitive, but still fundamentally Sales Volume Source: RCA $1B strong, an alternative to their home markets. Institutional buyers also remain engaged, drawn by the Northeast’s long-term reputation for stability.
Market Hotspots and Evolving Demand
Certain submarkets within the Northeast are drawing heightened investor attention. “Suburban urban cores near major cities are attracting significant investor interest,” Manfro explains, highlighting areas such as Westchester, NY and Fairfield, CT, Northern New Jersey, NASA and Suffolk County, NY and Boston’s MetroWest region inside the 495 Corridor. These locations have “not only weathered the post-COVID landscape but have sustained growth and investor interest due to their appealing live-work-play lifestyle and accessibility to urban hubs.”
Necessity-based retail remains the cornerstone of demand across the region. Manfro emphasizes that essential services—food, health, and fitness— continue to underpin stable occupancy, but she also sees emerging shifts. “The resilience of these core sectors suggests continued strong occupancy alongside potential growth in experiential retail and services catering to evolving suburban lifestyles,” she notes, pointing to a gradual diversification in tenant mixes as suburban consumer preferences evolve.
Regional Deep Dive: Southeast
The Southeast unanchored strip center market surged in 2024, emerging as one of the most active regions nationwide. Total transaction volume reached $2.14 billion–a 33.2% year-over-year increase–driven by robust growth in both individual and portfolio-level trades. Pricing metrics also strengthened, with the average price per square foot climbing to $230 and cap rates compressing to 7.1%, reflecting strong demand for neighborhood retail across the Sunbelt.
That momentum has carried into 2025, with $1.5B closing as of Q2. Pricing rose further to $264 per square foot, though cap rates have ticked up to 7.3% amid recalibrated risk premiums and tighter financing conditions.
According to Jeff Enck, Senior Vice President at Matthews™, the sustained surge in activity is no surprise. “Historically, the Southeast has imported a lot of capital from the West Coast and Northeast due to higher yields,” Enck explains. “That gap is narrowing, but the Southeast remains relatively attractive in terms of cap rates and price per square foot. Migration to metros like Miami, Atlanta, and Charlotte continues to rise–driven by job growth, business-friendly policies, and no or low income taxes. These factors are translating into persistent demand for essential-service retail.”
Market Leaders and Regional Hotspots
Miami/South Florida led all Southeast metros in 2025 with $283 million in sales, followed by Atlanta at $160 million, underscoring investor confidence in major gateway markets.
Vacancy rates across the Southern U.S. remained exceptionally low, averaging under 4%, with standout markets like Nashville, Miami, and Raleigh/ Durham posting vacancies below 3%. The Carolinas, in particular, have emerged as a national hotspot for retail, supported by high occupancy (around 97%) and population growth across both urban and suburban corridors. Tourism-driven demand, especially in Florida’s coastal cities, further enhances the region’s appeal.
Nearly every major MSA in the Southeast is in high demand. We’re seeing the most heat in high-income suburbs and dense, urban infill locations–particularly South Florida. That’s where some speculative pricing has emerged, but it’s really limited to those rare, high-end corridors.
Shifting Capital Stack and Competitive Dynamics
Private investors remained the dominant force in 2025, accounting for 79.4% of acquisitions, but the tide is beginning to shift. Private investors have become net sellers, prompted by refinancing pressures, maturing debt, and capital market headwinds. REITs, by contrast, stepped in aggressively, acquiring $141 million in 2024 and $136 million in H1 2025. Their share of acquisitions now hovers near 20%, signaling a growing appetite for high-quality, yield-generating strip retail. Enck says,
There are still very few true institutions acquiring unanchored retail centers. Curbline is a rare exception–they’re replacing their entire portfolio of grocery and power centers with strip centers. Meanwhile, quasi-institutional groups and funds are focusing on well-located strips that trade below replacement cost and offer long-term upside. The challenge? There just aren’t enough quality properties to go around.
Buyer demand continues to outpace quality supply, particularly for centers offering stable tenancy, belowmarket rents, or redevelopment potential. Enck notes that while public and private interest is rising, buyers are struggling to compete–especially in a landscape where top-tier assets are increasingly scarce.
Interest Rate Pressure and Financing Trends
High interest rates have reshaped the market’s financing dynamics. “Treasury yields have remained fairly flat in recent quarters, with some short-term dips,” Enck observes. “Savvy buyers have been able to lock in opportunistic rates, but in general, we’re seeing fewer deals close unless the asset is high quality and offers long-term stability.”
Most financing is now coming from credit unions and life insurance companies. CMBS lending, once a staple of strip center financing, has all but dried up for these smaller assets. “Buyers are largely steering clear of short-term; high-leverage capital. Instead they’re targeting Class A or well-located Class B properties that pencil out under positive leverage. Class B and C assets are still trading, but only when they deliver yields above borrowing costs,” he adds.
Tenant Mix and Leasing Fundamentals
Tenant fundamentals remain strong in the Southeast, with unanchored strip centers attracting a growing mix of convenience, dining, and medical uses. “Coffee is still in growth mode,” Enck says, “Along with both franchise and local restaurants, urgent care clinics, dental offices, and veterinary users.”
This evolving tenant-mix has helped keep demand high for available space, driving steady rent growth and keeping vacancy tight. In many cases, these newer tenants are backfilling older vacancies and stabilizing income streams, particularly in fastgrowing suburban trade areas.
Outlook: Stability and Strategic Positioning
The Southeast remains one of the most liquid and competitive regions for unanchored strip center investment in mid-2025. Private capital continues to drive the market, but institutional and REIT activity is rising. The investor profile is shifting toward buyers with long-term hold horizon and value-add strategies centered around demographic tailwinds and essential-service tenancy.
“Southeast retail continues to offer compelling fundamentals,” Enck concludes. “You’ve got population growth, tax advantages, a strong tenant base, and pricing that still looks attractive relative to other regions. That’s a powerful combination–and one that keeps buyers coming back.”
Regional Deep Dive: Southwest
The Southwest unanchored strip center market demonstrated clear signs of stabilization in 2024 following the sharp downturn in 2023. Total transaction volume for the year reached $1.91 billion, up 12.9% year-over-year, driven by consistent individual property trades, which totaled nearly $1.77 billion.
While Q4 volume declined 19.2% yearover-year–likely due to macroeconomic caution or closing delays–the full-year uptick and a 286% year-over-year surge in portfolio sales pointed to a reemerging wave of institutional interest. Early 2025 activity confirms renewed momentum, with $1.1B in transaction volume and 142 properties closed or pending as of Q2 2025. According to Grayson Duyck, Vice President and Associate Director at Matthews™, 2025 has been off to a roaring start, “we’ve been the busiest we’ve ever been, in Dallas specifically.”
Pricing dynamics in 2025 are particularly strong. The average pricing rose 11.2% year-over-year to $214 per square foot. This pricing strength was accompanied by a 11.2% year-over-year increase in total square footage traded. Cap rates have decreased 20 basis points over the last year to 7%, reflecting broader repricing trends. Yet in 2025, cap rates dipped to 7% by Q2, indicating increased bidding activity for stabilized products.
Duyck noted that investor psychology has shifted compared to a year ago. “People have gotten to the point where they’ve accepted market conditions and want to get deals done,” he explains. “Last year, buyers and sellers were far apart. Now, expectations have met the market.”
Capital Flows and Investor Profiles
The composition of capital in the Southwest continues to evolve. Institutional investors returned in force in 2024 with $84.7 million in net acquisitions but have reversed course in early 2025, registering $95.3 million in net dispositions–likely signaling profit-taking amid shifting macro conditions. REITs remained more cautious, contributing modest net acquisitions of $29.4 million in 2024 and $19.7 million in net dispositions in 2025 as they selectively reposition their portfolios.
Private capital remains the most active and agile investor group, ending 2024 with a moderate $56.2 million in net outflows before returning to net buyer status in early the first half of 2025 at $110.2 million. Duyck says,
Private owners are more willing to play ball. They don’t need to hit exact return metrics like institutions do. They can move faster and make decisions quicker, which gives them an edge in competitive environments.
Tenant Trends and Leasing Fundamentals
Southwest tenant demand remains robust, specifically in major Texas metros. Dallas, in particular, is seeing outsized activity from food and service users. “Restaurants are the most active in the market right now–especially franchise concepts and freestanding quick-service formats like Cava,” Duyck notes. “We’re also seeing a lot of boutique f itness–class-based models like pilates, yoga, barre, are outperforming the big-box gyms.” Many of these tenants are adapting to high rents by shrinking their footprints. “To combat higher costs, tenants are taking less space. They’re still doing strong business, but they’re being smarter with layouts,” Duyck adds.
Strong regional brands continue to show a preference for well-located, unanchored centers–even over grocery-anchored formats in some cases. “These centers on busy streets are still pulling in great traffic,” he says. “Tenants are seeing the same performance they would in larger centers, without the institutional lease structure.”
Drive-thru configurations also remain in high demand, although Duyck sees caution on the horizon. “Drive-thru space is red-hot,” he says. “But long-term, we’re going to see questions emerge around whether tenants can generate enough volume to justify the rent. It’ll be interesting to see how it plays out.”
Construction, Constraints, and Regional Growth
Despite strong leasing, development activity remains restrained. “Construction costs are still high, and vacancy rates are extremely low, especially in Dallas, where retail vacancy is under 4%,” Duyck explains. “Because there isn’t much new construction, rents have gone up. It’s getting very competitive.” This imbalance between supply and demand is driving renewed suburban expansion. “Collin County, Frisco, Prosper, Forney–those northern suburbs are booming,” Duyck says. “High-net-worth families are moving out of the city. Places like Kaufman County and Walsh Ranch–these thousand-acre master-planned communities–are drawing big interest.” Kaufman County has been recognized as the fastest-growing county in Texas and one of the fastest-growing counties in the nation.
Austin also remains a bright spot for growth, thanks to its booming tech sector and rapid population gains. Along with Phoenix and DFW, Austin continues to be a top market for tenant absorption and new development, particularly for flexible, service-oriented retail formats that cater to growing suburban populations.
Sales Strategy and Market Caution
While pricing remains strong, Duyck advises that buyers need to approach new construction deals with caution. “Some of these centers have inflated NOI because of generous tenant improvement packages. The rents being paid now aren’t always replaceable,” he notes. “Exchange buyers, in particular, don’t always account for that. If you’re buying a deal, make sure the rent is sustainable in the long run.”
Outlook: Normalization and Competitive Position
The Southwest market appears poised for steady growth in 2025. Institutional participation may remain selective, but private capital is showing clear signs of renewed conviction. With pricing stabilizing and buyer expectations realigning, deal velocity is expected to improve–especially for well-located, Class A assets.
“There’s so much growth and population expansion across the region,” Duyck concludes. “Investors have adjusted to the new normal, and we’re finally seeing that translate into real transaction volume. Everyone’s back at the table.”
Regional Deep Dive: West
The year 2025 is proving to be a pivotal recovery year for the Western U.S. unanchored strip center market. Total quarterly transaction volume reached $588M in Q1 2025 and $363M in Q2 2025, together the first half of the year represents close to a 40% year-over-year increase.
Pricing trends further underscore renewed confidence: the average price per square foot reached $301, while cap rates compressed to 6%, marking a significant shift from the wider spreads seen in 2023. These metrics suggest growing competition for limited quality assets and optimism around income durability and long-term upside.
According to Conrad Sarreal, First Vice President and Director at Matthews™, several structural and economic tailwinds are fueling the region’s momentum.
West coast multi-tenant retail continues to experience aggressive bidding and cap rate compression–often 50-100 basis points tighter than similar assets elsewhere. California metros benefit from a deep pool of both private and institutional capital, particularly high-net-worth individuals and family offices. In cities like Los Angeles and San Francisco, cap rates can dip as low as 4.5% to 5.5% for prime locations.
Metro Performance and Investor Focus
Performance across key Western metros reinforces this recovery narrative. Los Angeles led the region with $625 million in 2024 transaction volume and posted a strong $249 million start in the first half of 2025, highlighting its central role as a gateway for both domestic and international capital. San Diego, Las Vegas, and Seattle also posted year-over-year gains in 2024 and 2025, underscoring investor interest in metros with strong demographic and economic fundamentals.
Urban core strip centers in these cities continue to attract significant capital thanks to tight vacancy (96%+), rising rents, and an evolving tenant mix that reflects modern consumer preferences. “These centers are poised in dense, high-traffic areas near affluent neighborhoods and transit hubs,” Sarreal says. “West Coast multi-tenant centers increasingly feature experiential tenants–boutique fitness, craft breweries, and specialty services–now making up 1530% of new leases in 2025, especially in places like Los Angeles and Seattle.”
Meanwhile, performance in San Francisco and Sacramento remained relatively muted. San Francisco has seen transaction volume fall sharply from its 2022 peak, with just $46 million recorded year-to-date, as investors remain wary of broader economic headwinds and a sluggish return-to-office trend.
Urban Core Resilience and Market Fundamentals
The structural strength of urban strip centers continues to set the western region apart. Development in dense urban cores remains constrained by sky-high costs and regulatory complexity. In cities like Los Angeles and San Francisco, urban retail development can cost $450$650 per square foot, while California’s CEQA regulations further slow the pipeline. As a result, new supply remained limited in 2024, adding just 0.2%0.5% of inventory in primary markets–boosting pricing power and tightening already low vacancies.
“Despite population shifts, West Coast metros still benefit from high-income consumers and strong retail demand,” Sarreal notes. “With average occupancy rates between 95%-96%, tenant stability and consumer spending reinforce premium pricing.” He points to the concentration of wealth in cities such as San Francisco ($160,000 median household income), San Jose ($150,000), and Seattle ($120,000) as key drivers of tenant performance and rent growth.
Capital Composition, Institutions Return, REITs Retreat
Institutional investors have reemerged as key buyers, accounting for 11.9% of acquisitions in 2025 after remaining largely on the sidelines in 2023. This renewed activity signals rising confidence in the sector’s income durability and long-term upside.
REITs, by contrast, have become net sellers, representing over 20% of dispositions so far this year. Private investors still dominate overall, but the buyer mix is shifting. “Secondary markets like Sacramento and Fresno are seeing growing interest from family offices and 1031 buyers,” notes Sarreal. “These investors are pursuing value-add players like lease-up or repositioning and are drawn by higher yields and lower pricing relative to urban cores.”
Secondary and Tertiary Market Divergence
While primary urban markets continue to anchor investment volume and pricing stability, secondary and tertiary markets are carving out their own roles.
Sales Volume Source: RCA $4B Secondary markets such as Sacramento, Tacoma, and Fresno are gaining momentum with 10-12% investment growth, fueled by private capital and affordability-driven migration. Tertiary markets, including Bakersfield and Spokane, showed 7-8% growth, attracting smaller private investors willing to accept higher yield and risk exposure.
Cap rate spreads illustrate the divergence: primary markets trade in the 4%-5% range, while secondary markets offer yields of 5.5%-6.5%, and tertiary markets reach 6.5%-8%.
Outlook: A Repricing Moment with Strategic Opportunity
Urban cores remain the benchmark for stability and institutional capital, while smart money increasingly targets secondary markets offering favorable yield spreads relative to borrowing costs. Tertiary markets remain opportunistic, but speculative bets.
“Urban hubs provide long-term stability, but the real growth story may be in the secondary markets,” Sarreal concluded. “They balance risk and reward more effectively and offer a yield premium that looks increasingly attractive given where debt costs are.”
As pricing stabilizes and buyer composition diversified, Western unanchored strip centers are once again positioned as a competitive asset class–both for core investors and value-driven players seeking durable income in a constrained supply environment.
