Retail Is the Best-Performing Property Type and Nobody Is Talking About It
The week's numbers
April inflation printed at 3.8% year over year, mostly on energy. Unemployment held at 4.3%. The 10-year Treasury climbed to 4.32% as the Middle East conflict kept a premium in oil. That is not a friendly backdrop for real estate. Yet retail posted 4.4 million square feet of net absorption for the month, 2.0% rent growth, and a vacancy rate of 4.4%. General retail, the freestanding and strip stuff, ran at 2.7% vacancy. Dallas-Fort Worth led absorption at over 2 million square feet.
The reason is supply, not demand
Almost nobody has built a shopping center in a decade. Construction costs, land prices and the memory of 2009 kept the pipeline near zero while the country added 25 million people. Meanwhile the weak retailers already failed. The chains that survived 2020 are the ones with balance sheets, and they are expanding into a market with no new space. Vacancy is low because the supply side quit, and rents are growing because a tenant who wants a corner in a good trade area has to pay whoever owns it.
That is a landlord's market built on scarcity rather than on a booming consumer. It is durable as long as nobody starts building again, and at today's construction costs nobody can make a new center pencil at these rents. Expect this to hold for several years.
Where the risk actually sits
Restaurants. Starbucks, Pizza Hut, Papa John's and Wendy's are all running closure programs this year. Quick service and casual dining are the tenants with the thinnest margins and the most exposure to energy and labor costs. If your center's rent roll is 30% or more food and beverage, your 4.4% vacancy figure is a national average that does not describe your building. Pull the sales reports, check the percentage rent breakpoints, and find out which operators are within 10% of their break-even before the closure announcement arrives.
The second risk is the CAM bill. Energy and insurance run through common area charges, and a 3.8% inflation print built on energy means the 2026 reconciliation will be a surprise for tenants who budgeted 3%. Send the estimate adjustment now. A tenant who gets a $40,000 true-up in March 2027 is a tenant who starts calling brokers.
What to do with a retail asset this year
Push rents at renewal and expect to get them, but trade a point of rent for a longer term with a credit tenant. Tighten the co-tenancy language while you have the upper hand. Refinance if the loan lets you, because the debt markets have started to like retail again and that mood has not lasted long in the past. And do not chase the 2.0% rent growth into a development. The numbers work because of what nobody built. Keep it that way.
Read the sales reports before the closure notice arrives
Retail leases with percentage rent give the landlord a monthly or quarterly sales report from each tenant. Most of those reports go into a folder. Nobody compares them to the breakpoint, tracks the trend, or flags the restaurant whose sales fell 12% over three quarters. The first sign of trouble is usually a late rent check, and by then the closure decision has been made at the tenant's headquarters.
Automating the intake is not complicated. A tool reads each report, extracts the sales figure, compares it to the breakpoint and the prior period, and flags the tenants trending toward trouble. That turns a filing task into an early warning system. It also catches the tenant who owes percentage rent and has not paid it, which in our experience is a five-figure recovery in most centers the first time the check runs. On the expense side, the same discipline applied to the CAM estimates means the 2026 energy costs get billed as estimates during the year instead of as a surprise in the reconciliation letter.