The retail apocalypse may have blown away some box chain giants like Borders, Circuit City, and Modells. However, in towns and cities across the U.S., the humble strip mall, filled with mom-and-pop-run businesses, is doing a roaring trade. Now, big-money investors are catching on.

According to the Wall Street Journal, the demise of large indoor malls in favor of e-commerce and warehouses has left a gap in the market for physical retail, which open-air outdoor malls have filled, resulting in high demand and low vacancies. Wall Street has paid attention. In November, investment juggernaut Blackstone spent $4 billion on shopping center owner Retail Opportunity Investments – which owns 90 shopping centers – its largest retail investment since 2011.

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The Importance Of A Grocery Store

Data from real-estate research firm Green Street reveals that open-air shopping complexes work best when the anchor tenant is a grocery store – footfall in supermarkets has increased 12% from 2019-2024 – surrounded by in-person experiential businesses like coffee shops, nail salons, and medical centers, which are impossible to replicate online. Remote and hybrid work means that many of these businesses are not solely reliant on weekend custom.

Following Blackstone’s lead, CBRE expects $10 billion worth of U.S. open-air retail portfolios to change hands in 2025. Blackstone president John Gray said at a Goldman Sachs-hosted event:

“If you were an investor in real estate after the financial crisis, you would have made a lot of money. And my guess is, if you are an investor today, the same thing will happen.”

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A Retail Renaissance

In a September blog post, James Corl, head of New York-based private real estate group Cohen and Steers, concurred that the open-air shopping center investment opportunity was a “retail renaissance.” Cohen and Steers recently spent $127 million to buy a fully leased outdoor shopping center in San Mateo, California.

"We see the landscape ahead of us as quite attractive,” Corl said in a blog post. “The recovery in the metrics on the ground do not lie. Landlords are recognizing and using their newfound leverage. Open-air shopping centers are the only major property type that is experiencing an acceleration in rental rate growth.”

Amazon Loses Ground In The New Retail Reality

His post also explained how warehouse-type retailers like Home Depot, Costco, Walmart and Target use their physical stores as fulfillment centers. At the same time, Amazon has not made the transition effectively – an essential move for the online retailer due to the expense and annoyance of mail-in returns.

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According to Yelp, while grocery stores are essential as anchor tenants in strip malls, restaurants such as the Cheesecake Factory are also proving wildly popular in larger indoor/outdoor malls. 

Yelp Trends states: “17 of the top 25 mall brands are in the food category. This shift is reshaping the way malls are perceived and utilized, with food and dining becoming the mall destination instead of the afterthought.”

Demand Can’t Justify New Construction … Yet

Despite the uptick in the outdoor mall business, building new malls from scratch is not a profitable endeavor … yet. Rapidly increasing construction costs have made new mall construction prohibitive, meaning current mall landlords can afford to raise rents after years of contraction. However, according to Green Street, rents need to be raised at a whopping 65% to justify new construction. Strip mall demand might be high, but it’s not that high.

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