In-Line Strip Malls Are Booming

The Post Pandemic World is reshaping suburban shopping habits with more people working at least part time from home. Annual visits to strip malls increased 18% last year compared with before the pandemic, according to retail and commercial real-estate data-analytics firm RetailStat, which analyzed foot-traffic data from 2,500 centers.

People who previously drove straight to the office after school drop-off are now grabbing a coffee or running errands on their way home to hop on video calls. Others are visiting FedEx and UPS more frequently to mail back items bought online. And the rise of food-delivery services has increased the desirability of retail that is close to the road and allows drivers quick and easy access.

“The faster you can get in and out, that’s what the American customer wants,” said David Lukes, president and chief executive of SITE Centers. Strip malls; rows of small shops built close to the road that are also known as convenience properties; have flown under the radar in recent years as investors gobbled up shopping centers anchored by grocery stores. Now, increasing foot traffic and declining vacancy rates show these properties don’t need large anchors to draw in customers and tenants.

“The consumer has changed because of the post-Covid world,” said Josh Suffin, president of real estate services for RetailStat. “Beyond the work-from-home, the whole world is changing in how quickly things move.” These changing habits are boosting strip malls as tenants compete for space. Average-asking rents at U.S. convenience-store centers reached a record-high $20.37 a square foot in the third quarter, a 17.3% increase compared with the same period in 2019, according to CoStar Group, which tracks data dating back to 2006. The rate of available space in strip malls fell to 5.3%, representing the tightest level of supply on record.

For years, investors relied on sales reports from big-box tenants to determine whether shopping centers generated strong customer traffic. Unanchored strip malls, lacking this data, seemed like riskier bets and have largely been owned by local, private investors. So far this year, 88% of unanchored-retail center transactions as of Sept. 30 involved purchases by private investors, according to data from MSCI Real Assets. Publicly traded and institutional investors purchased 9%.