Neighborhood strip malls—often called shopping centers—are becoming popular again among real estate investors. In simple terms, these properties, which usually have several small stores in one location, offer steady income and lower risks compared to some other types of real estate. Let’s take a look at why these shopping centers are making a comeback, why they’re considered low-risk, and what makes them an attractive investment.
1. Signs of Growing Interest
Lately, there’s been more buzz around shopping centers:
- More Buying and Selling: Recent reports show that more investors are buying and selling strip malls. Big companies that manage real estate, like CBRE and JLL, have noted that these properties are being traded more often.
- Big Players Are Involved: Not just small investors, but also big institutional investors like pension funds and Real Estate Investment Trusts (REITs) are adding shopping centers to their portfolios. They’re looking for properties that provide steady cash flow, especially since some other investments (like office buildings) have become more unpredictable.
- Easy Financing: Loans for buying shopping centers are attractive right now, which means more people are able to invest in them.
2. Why the New Interest?
There are a few key reasons why shopping centers are catching the eye of investors:
- Everyday Shopping Needs: Many strip malls include essential stores like grocery shops, pharmacies, and fast-food restaurants. These businesses tend to do well even when the economy is shaky because people need them regardless of economic ups and downs.
- Convenience: People love convenience. Strip malls are usually located in neighborhoods, making it easy for local residents to run errands or grab a quick bite.
- Population Trends: Many suburbs are growing, which means more people living nearby and shopping locally. This trend helps keep strip malls busy.
- Online Shopping Help: Even though online shopping is huge, many stores in strip malls offer services that online retailers can’t, such as in-person experiences, easy returns, or local pickup options. This mix of services helps keep shopping centers profitable.
3. Lower Risks Compared to Other Investments
Shopping centers come with some built-in safety features that reduce the chance of big losses:
- Mix of Tenants: Strip malls often have a variety of stores instead of relying on just one business. This way, if one store struggles, the others can still keep the mall going strong.
- Triple Net Leases: Many strip malls use what’s called a “triple net lease.” This means the store pays most of the expenses (like property taxes, insurance, and maintenance), so the owner has less risk and more predictable income.
- Reliable Income: With everyday businesses as tenants, strip malls usually have a steady flow of customers and reliable rental income even during tough economic times.
- Easy to Change: If market conditions change, strip malls can sometimes be updated or repurposed more easily than other property types, reducing the risk of long-term vacancies.
4. What Makes Them Attractive?
Here’s why many investors find shopping centers so appealing:
- Steady Money Flow: Since the tenants are often essential businesses with long-term leases, the income from these properties is usually very steady.
- Safety for Your Investment: Because of their steady cash flows and less volatile nature, shopping centers are seen as a safer bet compared to some other types of real estate.
- Protection Against Inflation: Many leases include built-in rent increases, which helps protect against inflation. This means the income from the property can grow over time.
- Opportunities to Improve: Investors can sometimes boost their returns by renovating or updating the property and improving the mix of stores, which can make the shopping center even more attractive.
Summary
In a nutshell, neighborhood strip malls are becoming a popular real estate investment again for a few simple reasons:
- Growing Interest: More investors, including big companies, are buying these properties.
- Strong Demand: Everyday stores and convenience make these malls reliable, even when the economy isn’t doing great.
- Lower Risk: A mix of tenants and lease structures that shift costs to the businesses help lower the risk.
- Attractive Returns: With steady income, built-in rent increases, and opportunities to add value, shopping centers offer a promising investment option.
References
- CBRE Research. (2023). Retail Investment Trends Report. Available at: https://www.cbre.com/research-and-reports
- JLL Real Estate Insights. (2023). The Rise of Suburban Retail: Trends and Opportunities. Available at: https://www.us.jll.com/en/trends-and-insights
- National Real Estate Investor. (2023). Shopping Centers: A New Era for Retail Assets. Available at: https://www.nreionline.com/retail/shopping-centers
- Forbes Real Estate. (2022). Why Neighborhood Strip Malls Are Making a Comeback. Available at: https://www.forbes.com/real-estate/
- Real Capital Analytics. (2023). Market Trends in Retail Investment. Available at: https://www.rcanalytics.com/
Eddie Coleman, CCIM, is the Principal Investment Officer at NC Capital Group. With over 40 years of experience in Commercial Real Estate in North Carolina and South Carolina, his experience spans multifamily, retail, office, historic adaptation, etc. In addition to advising clients and brokering transactions, he has extensive knowledge of North Carolina through experience in corporate site acquisition, development, capitalization, HUD financing, etc. He holds the prestigious Certified Commercial Investment Member (CCIM) designation.