Values of open-air, necessity driven shopping centers have bottomed; a reality that most investors have yet to fully recognize.
KEY TAKEAWAYS
- Open-air, necessity driven shopping centers pricing has bottomed
While private commercial real estate fund values in the US, on average, have further to fall, there is one type of property that we believe has bottomed: open-air, necessity-driven shopping centers. - Strong retailers are thriving
The strongest retailers didn’t just survive the retail apocalypse, they are thriving with internet-resilient models and are driving a Retail Renaissance amid extremely low property supply. - Opportunity knocks
We believe that a durable acceleration in earnings growth combined with relatively high current yields will propel shopping center investment performance for some time; a reality that the market has yet to fully recognize.
Private real estate is repricing. But shopping center values have bottomed.
Many have tried to make the case that U.S. private real estate fund values have bottomed. Don’t believe it.
Persistently low property yields below borrowing costs signal that yields on popular property types such as warehouses, apartments, and storage facilities need to rise further (Exhibit 1). We have rarely seen negative leverage stories with happy endings.
EXHIBIT 1
Commercial real estate repricing underway
Green Street sector cap rates, UST (10yr), & avg. borrowing cost(1)

At June 30, 2024. 10yr Treasury data as of April 24, 2024. Source: Green Street, Bloomberg, Cohen & Steers.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. (1) Yields shown reflect historical 10Y treasury yields and market cap rates as reported by Greenstreet data.
In fact, over the course of 2024, we have continued to make the case that although public REIT prices bottomed in late 2023, private commercial real estate fund values in the US, on average, have further to fall. We see continued evidence of this.
However, there is one type of property that we believe has bottomed. Shopping centers. Open-air, necessity-driven shopping centers to be more specific.
The unfolding of the retail apocalypse
For many years, the US was over-stored. The opening up of the suburbs in the postwar period, abetted by the interstate highway system, provided plenty of room for surface-parked, single-story neighborhood and community shopping centers to proliferate.
Retailers loved opening stores, and developers loved building buildings. Together, they peppered the countryside with these centers, often ahead of demand.
By the early 2000s, the result too often was declining sales productivity for the merchants and declining occupancies and rents for the landlords. This madness all came to a stop when construction financing disappeared during the global financial crisis (GFC).
Then, along came the internet, e-commerce and Amazon to gut punch this rickety alliance of uninspiring retailers and financially extended property owners. The result was, toward the end of the last decade, the retail apocalypse.
Whatever love remained for these centers, which had once impressed investors with reliable cash flows, was quashed.
The rental rate structure was obliterated. The remaining creditworthy tenants demanded and received large tenant improvement allowances and lengthy renewal options at low rents. Many investors red-lined retail shopping centers. Those investors that still owned them tried to heave them over the side.
By 2017, it was too late. Amazon stock was climbing as it disintermediated one retail product category after another, and it seemed as if the physical store had become an obsolete construct. The smartphone, warehouse and delivery truck were to be the new logistical system through which consumers received their goods.
The shuttering of stores during Covid and the spike in popularity of e-commerce and its accompanying warehouses were expected to be the apotheosis of this trend. The casualty list of store-based retailer bankruptcies that has piled up since 2017 is almost unbelievable: Toys “R” Us, Brooks Brothers, JCPenney, Lord & Taylor, Lucky Brand, Century 21, Sears, Guitar Center, Nine West, The Limited, Barneys, Diesel, True Religion, Modell’s, Neiman Marcus, J.Crew, Francesca’s, Brookstone, GNC, Gymboree, Pier 1, Bed Bath & Beyond, Claire’s and Forever 21.
The outlook for retail stores couldn’t have been darker. But reports of the death of the store were greatly exaggerated, and the seeds of the Retail Renaissance were germinating beneath the surface.
For starters, the pace of new retail shopping center construction has remained the lowest of any major property type (Exhibit 2). In 2008, more than 120 million square feet of new shopping space was built. Construction rapidly declined over the following two years in the wake of the GFC and then remained low, bottoming in 2022 when five million square feet was delivered.
Meanwhile, the U.S. economy has continued to grow, and U.S. consumers have not lost their penchant for consumption. Retail sales have continued to grow reliably at 3% annually even as store growth, as measured by net square footage, has been less than 1% for more than a decade.
EXHIBIT 2
Declining shopping center supply has helped drive higher occupancy
Shopping center construction vs. occupancy (‘08–’23)

At November 16, 2023. Source: CoStar. Reflects neighborhood centers, power centers and strip centers.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin.
The Retail Renaissance: the new utility of a physical store
The retail apocalypse set off a Darwinian episode of creative destruction on a massive scale. What did not kill the most adaptable and well-managed retailers made them stronger.
Segments of the retail industry for which warehouse-based e-commerce is a better model were weeded out. So were poorly run retailers. Meanwhile, the strongest retailers didn’t just survive the apocalypse. They’re now thriving, and they have shifted to models more resilient to e-commerce threats.
Grocery stores, the largest component of brick-and-mortar retail, have proven to be irreplaceable by warehouse distribution. The logistics are too tough, and the margins are too thin.
At the same time, omni-channel retailing—including “click-and-collect,” with physical stores supporting online order fulfillment—has become the new reality. A majority of Target’s and Walmart’s online orders are now fulfilled from its stores.
Now that an alternative to the physical store has emerged, store-based retailers can no longer act like monopolists. They have to give customers a reason to come to the store—an experience, a value proposition.
Some use it as a showroom (e.g. Warby Parker, Bonobos, Tesla) while also using stores to enable returns, which are a margin killer for lots of pure e-commerce categories and a nuisance for customers.
Others, such as Home Depot and Costco, use physical stores primarily as a fulfillment center. Notably, e-commerce sales are much higher in areas where a physical store is nearby. The store’s proximity to the consumer enables it to become a brutally effective “last-mile warehouse.”
Many services segments have also proven resistant to disintermediation, for obvious reasons: beauty services, fitness centers, food and beverage, medical services and entertainment. These are flourishing in the shopping center environment.
In our view, the arrival of this omni-channel model with the physical store at the core indicates that the online/warehouse-based merchants’ days of gobbling up market share from store-based retailers would seem to be at an end. Successful retailers of all stripes are now looking to utilize more physical stores.
The counterattack from brick-and-mortar stores is working.
The race to omni channel: Walmart vs. Amazon
It is instructive to consider the business models of the two largest retailers in the US and the world: Walmart and Amazon.
Walmart started as 100% store based and is moving into online sales origination rapidly. Amazon started as 100% online (with 100% warehouse-based delivery) and has, reciprocally, attempted to move into store-based retailing.
Walmart has been much more successful at expanding into online origination than Amazon has been at moving into store-based fulfillment. Walmart is generating $82 billion of its $600 billion in sales online; half of that is fulfilled from stores.
Once Walmart figured out the online origination front end — after some multi-billion dollar fits and starts — it grew e-commerce sales rapidly given that it already has such an efficient, profitable and scalable store-based goods delivery system.
Amazon, conversely, generates only $20 billion of its $343 billion in retail sales from stores despite repeated attempts to grow this segment. Other than the success of the Whole Foods that Amazon acquired, its attempts to enter store-based merchandising have not succeeded. Amazon Go, Amazon Books, Amazon 4-star, and Amazon Fresh have each launched with great fanfare but have not become ubiquitous as planned.
Amazon’s efforts to provide a wider range of customer solutions (web- enhanced in-store or traditional in-store “cart” shopping, in-store pickup, and/ or curbside pickup) have been hamstrung by its absence of a large retail store network. The company is missing out on these omni-channel opportunities.
The strategic value of a store footprint that is already proximate to customers’ households is a significant, leverageable, and increasingly valuable competitive advantage. The dominant store-based retailers — led by Walmart and its brethren, particularly Target, Home Depot and Costco — are locked into a cheap, profitable store-based fulfillment system. Meanwhile, Amazon looks increasingly locked out of these store-based advantages.
Investment opportunities are emerging
As a result of many years of very low levels of retail property development, and the renewed demand for stores from re-invigorated retailers, shopping centers are now the most highly occupied of any major commercial property type in the US (Exhibit 3).
Property owners in the retail space now have the leverage. Tenant improvement allowances are coming down. Costly co-tenancy clauses are getting weeded out. Percentage rent deals are becoming more rare. We expect accelerating rent growth as strong demand meets very limited supply.
EXHIBIT 3
Open-air shopping center occupancy is high and rising
Occupancy levels of major property types

At April 2, 2024. Source: CoStar.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not represent the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance listed above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. There is no guarantee that any market forecast set forth in this presentation will be realized.
Yet many real estate investors can be forgiven for remaining skeptical about this sector. For 20 years, the compounded annual growth rate of retail assets’ operating income in the NCREIF benchmark have been among the lowest of any property type — 1%.
Poor investment performance has followed as lower multiples ultimately accompanied deteriorating lease economics and disappointing growth in operating income. As a result, investor sentiment has been negative since the Covid nightmare, and many of the usual property buyers have been sidelined by the unavailability of capital.
We see the landscape ahead of us as quite attractive. 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.
We believe that we are about to witness a further acceleration in releasing spreads and net operating income annual growth rates. With capital values well below replacement cost levels, a resurgence in new retail construction is a long way off.
Market rents and therefore property level cash flows would seem to have a very long way to run. And yet entry yields are at historically high levels, and importantly, in excess of senior mortgage debt costs.
Consider this in contrast to warehouses, where rents are at record high levels and yields close to record low levels, resulting in capital values well in excess of replacement cost. Not surprisingly, this has resulted in a record level of new construction as developers have sought to exploit the large profit potential between building costs and the capitalized values of leased warehouse boxes.
This construction boom has coincided with slowing demand growth. Warehouse rental rate growth is either decelerating or declining outright. Nonetheless, warehouses in private funds are still being capitalized at yields, or “capitalization rates” near record lows that are well below current borrowing costs. This will make refinancing difficult. We believe there is trouble ahead.
In the shopping center world, we are witnessing that rarest of convergences — trough multiples on trough earnings. These significant mismatches between fundamentals and valuations generally do not persist for very long before they start to correct.
Meanwhile, the performance of shopping centers relative to other major property types has climbed out of the basement. When property yields pushed up in response to higher rates, shopping center values corrected quickly in 2022 and 2023. But, having already been beaten down for years, they hit a bottom more readily than other property types coming off of epic highs (Exhibit 4).
EXHIBIT 4
Last cycle’s winners likely won’t repeat
Sector performance patterns in private real estate

At June 30, 2024. Source: NCREIF and Cohen & Steers.
Data quoted represents past performance, which is no guarantee of future results. The information presented above does not represent the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance listed above. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. There is no guarantee that any market forecast set forth in this presentation will be realized. (1) Subsectors of Private Real Estate are represented by the NCREIF NFI ODCE Index – Levered Total Return.
We believe that the durable acceleration in earnings growth combined with relatively high current yields will propel shopping performance for some time. This is a reality that the market has yet to fully recognize. While this circumstance remains, we will be deploying capital to aggressively take advantage of the arrival of the Retail Renaissance.
FURTHER READING

The Real Estate Reel: Drivers of commercial real estate returns in 2025
A look back. The potential drivers of commercial real estate returns in 2025. And a look forward.

The Real Estate Reel: How institutions are invested in real estate headed into 2025
More investors are allocating to REITs, as listed and private real estate repriced and more investors seek liquidity.

The Real Estate Reel: Private real estate turns positive for first time in two years
The increase in total returns for private real estate was modest, but we think it is notable for several reasons.
Important information
An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment.
Data quoted represents past performance, which is no guarantee of future results. The views and opinions presented in this document are as of the date of publication and are subject to change. There is no guarantee that any market forecast set forth in this document will be realized. This material represents an assessment of the market environment at a specific point
in time and should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or to account for the specific objectives or circumstances of any investor. We consider the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Cohen & Steers does not provide investment, tax or legal advice. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing.
Risks of Investing in Private Real Estate. Private real estate investments are illiquid and susceptible to economic slowdowns or recessions and industry cycles, which could lead to financial losses and a decrease in revenues, net income and assets. Lack of liquidity in the private real estate market makes valuing underlying assets difficult. Appraisal values may vary substantially from a price at which an investment in real estate may actually be sold.
Risks of Investing in Real Estate Securities. The risks of investing in real estate securities are similar to those associated with
direct investments in real estate, including falling property values due to increasing vacancies; declining rents resulting from economic, legal, political or technological developments; lack of liquidity; lack of availability of financing; limited diversification, sensitivity to certain economic factors such as interest rate changes and market recessions and changes in supply of or demand for similar properties in a given market. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.
Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a U.S. registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, U.S. endowments, foundations and mutual funds. Cohen & Steers Asia Limited is authorized and regulated by the Securities and Futures Commission of Hong Kong (ALZ367). Cohen & Steers Japan Limited is a registered financial instruments operator (investment advisory and agency business and discretionary investment management business with the Financial Services Agency of Japan and the Kanto Local Finance Bureau No. 3157) and is a member of the Japan Investment Advisers Association. Cohen & Steers Ireland Limited is regulated by the Central Bank of Ireland (No.C188319). Cohen & Steers UK Limited is authorized and regulated by the Financial Conduct Authority (FRN458459). Cohen & Steers Singapore Private Limited is a private company limited by shares in the Republic of Singapore.
For Investors in the Middle East: This document is for information purposes only. It does not constitute or form part of any marketing initiative, any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any products, strategies or other services nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract resulting therefrom. In the event that the recipient of this document wishes to receive further information with regard to any products, strategies other services, it shall specifically request the same in writing from us.