Unanchored Retail: The Rise, Resilience, and Real Returns
In an enlightening conversation on The Source of Commercial Real Estate Podcast, Matthews™ Senior Vice President Jeff Enck dives deep into the transformation of this often-overlooked asset class, it’s surprising resilience through economic cycles, and how buyers and sellers navigate today’s retail real estate market.
The Evolution and Appeal of Strip Centers
Jeff’s career began in the late 1990s, initially selling shopping centers in Gwinnett County, Georgia. Despite initial disappointment, he dreamed of selling glitzy office towers—he grew to appreciate and master the intricacies of unanchored strip centers. Over the years, he witnessed the evolution of these centers from low-rent, mom-and-pop dominated sites to high-demand assets commanding $200–$400 per square foot, with some even hitting $1,000 in prime locations.
While the types of tenants haven’t changed dramatically, their perceived value certainly has. From dry cleaners and insurance offices to urgent care clinics and boutique gyms, strip centers have emerged as critical service-oriented hubs. Enck highlights how their Amazon-proof nature, what he calls Essential Service Retail (ESR), has made them incredibly resilient, even during crises like the COVID-19 pandemic.
Misconceptions Around Retail
Contrary to the doom-and-gloom headlines about retail closures and bankruptcies (e.g., Bed Bath & Beyond, Party City), Enck explains that strip centers are thriving. With national retail occupancy hovering around 94–95%, demand remains strong, especially for properties with good “intrinsics”—visibility, traffic access, and location.
Jeff distinguishes between anchored centers (with grocery or major tenants) and unanchored centers, which rely on convenience, not foot traffic from a flagship store. Today’s investors are learning that a well-located strip center with a thoughtful mix of service tenants can perform just as well, if not better, than anchored alternatives.
Mom-and-Pop Tenants: From Risk to Asset
Historically considered a liability, mom-and-pop tenants are gaining new respect. Enck and others in the industry have observed that these tenants, with their livelihood on the line, often outperform corporate-run stores. He shares anecdotes from the Matthews™ Strip Center Roundtable, where institutional investors acknowledged that franchisee-operated stores frequently deliver better sales than their corporate counterparts.
COVID-19 further revealed the reliability of local operators. While corporate tenants issued blanket rent deferment requests, many mom-and-pop tenants proactively worked with landlords to stay open and meet obligations. Their investment and adaptability have earned them new credibility in the eyes of landlords and buyers alike.
Off-Market Deals and Buyer-Broker Relationships
Jeff shares a compelling story about an off-market sale in Rock Hill, South Carolina. The center was 62% leased and owned by an out-of-state investor, unaware that overgrown landscaping was hiding the property from view. After a few strategic tree removals and buyer outreach, Enck and his partner secured a deal. The lesson? Relationships are key. Brokers prioritize buyers they know and trust, especially for off-market opportunities.
For buyers, Jeff emphasizes the importance of “keeping your brokers close”—understanding their deal flow, acquisition criteria, and maintaining regular communication. In today’s competitive environment, many deals happen not through listings but through a handful of well-placed calls.
Risk Factors in Today’s Market
Despite his optimism, Enck cautions investors not to overlook potential risks:
Poor Intrinsics
Centers with awkward layouts, poor visibility, or difficult access may appear fully leased today but could face trouble in a downturn.
Overpaying
The golden rule remains—you make your money on the buy. Overestimating value based on future potential, especially with rising rents and interest rate sensitivity, can backfire.
Unsustainable Rents
New developments pushing $50-$60 per foot rents in elite markets may strain tenant viability long term.
Looking Ahead
The strip center landscape is undergoing a transformation. While institutional interest is growing, the market remains largely dominated by private owners. Hold cycles vary, but most private owners sell every 7–8 years, while funds are now holding assets for 10–15 years due to a lack of compelling reinvestment opportunities.
In the end, Jeff Enck paints a picture of a vibrant and dynamic asset class that continues to defy expectations. With smart underwriting, strategic tenant mixes, and strong broker relationships, unanchored strip centers represent a compelling investment avenue for today’s real estate players.
