📢U.S. retail REITs are posting their strongest fundamentals since before the pandemic. Occupancy has reached 96.6%—the highest among major property types—while new retail construction remains at historic lows. Tenant demand is concentrated in necessity-based and experiential retail, while limited supply is keeping vacancy tight and landlord leverage intact.

Loan Performance, Retail REIT balance sheets are benefitting from solid cash flow growth. Same-property NOI rose 4% and FFO climbed 5%, strengthening coverage ratios and improving refinancing options. Banks and insurers are lending at 60–65% LTV with spreads of 200–250 bps over SOFR, producing all-in coupons of ~6.5–7%. Unlike office, distress levels are muted, though B/C malls remain refinancing risks.

Demand Dynamics, Leasing is led by grocery, off-price, fitness, and experiential tenants. Bed Bath & Beyond and other closures created supply but were swiftly backfilled, highlighting adaptability. National net absorption was negative YTD (-11.1 MSF) due to closures, but in key metros absorption is rebounding. Tenant sales are stabilizing, with healthy occupancy cost ratios in the 8–12% range.

Asset Strategies, Owners are prioritizing tenant mix, reinvesting in deferred maintenance, and adapting older spaces for omni-channel uses like curbside pickup or lockers. Record small shop occupancy (92.2% at Kimco) demonstrates successful retenanting strategies. Big-box subdivisions and interim uses (storage, entertainment, medical) remain common where anchors falter. Repositioning capital is essential: $1–$2 per SF annual capex in stabilized centers.

Capital Markets, Grocery-anchored and open-air centers trade in the mid-6% cap rate range, about 50 bps higher than 2022 but still attracting equity. Retail construction is limited (<0.2% of stock last year), ensuring durable pricing power. Retail REITs are outperforming peers on public markets (+5% YTD). Mall-heavy portfolios are discounted, while open-air strategies receive premium valuations and investor inflows.

Retail real estate is positioned as one of the most stable CRE sectors heading into 2026. Occupancy should remain near cycle highs given negligible new supply. Risks include consumer spending softening if macro conditions deteriorate and pressure on discretionary retailers. However, necessity-based retail and experiential concepts should cushion downside.

Capital markets remain open: retail debt is priced attractively relative to office and multifamily, and equity flows are positive. Institutional investors are rotating into grocery-anchored centers for stable cash flows. Expect continued NOI growth in the low-single digits, rent spreads in the low-to-mid teens, and resilient valuations. B/C malls remain the weak link and will likely continue to see attrition and repurposing.