Retail Real Estate Emerges as Preferred Investment Amid Capital Surge
Transaction activity across commercial real estate is not just weathering economic turbulence—it’s picking up pace, industry leaders emphasized during the “Navigating Today’s Transaction Landscape” panel at the ICSC@Western conference in Palm Springs. Despite ongoing uncertainty, a pattern of renewed engagement and rising deal volume is emerging, panelists said, underlining a shift in both sentiment and market dynamics.
Ed Hanley, president of Hanley Investment Group, moderated a discussion that included Jonathan Cheng of Tourmaline Capital, Chris Hollenbeck of Cushman & Wakefield, and Melissa Ley Marshall of CBRE, all of whom report that capital markets are showing signs of cautious optimism. “The momentum is definitely building,” said Marshall, forecasting a 12% increase in transaction volume this year across asset classes. She pointed to the return of 1031 exchange capital, intensified institutional focus on the net lease sector, and a resurgence of investors who had previously stepped to the sidelines. According to Marshall, these trends set the stage for a robust opening to 2025.
Hollenbeck described a market where institutional deal velocity is climbing sharply—up between 20% and 25% from previous years. He recounted a recent client’s experience in which, after selling a major hotel but finding replacement options scarce, the buyer shifted capital into high-performing retail properties, specifically a Chick-fil-A and a McDonald’s. “Retail has not only held its value, but in some cases, it’s become the preferred investment vehicle,” Hollenbeck said.
Cheng characterized the current environment as one of growing stability. “While volatility still exists, it’s definitely better than it was three years ago,” he said. He noted progress on key fronts: inflation is easing, interest rates are widely expected to decline, and lenders are returning to the market—even if wide spreads in the bridge loan space point to lingering inefficiencies. Yet, pricing remains a sticking point. “Deals are happening where sellers are realistic,” Cheng said. “Where they’re still stuck on 2021 pricing, those assets sit. But there’s capital chasing deals again.” He cited a recent off-market transaction with 20 competing offers, far exceeding expectations. “The buyer pool is active, especially for mispriced or off-market opportunities,” Cheng observed.
Geoff Tranchina, JLL Capital Markets senior managing director, echoed and amplified the panel’s conclusions in a conversation with GlobeSt.com. “Bid sheets are way up,” Tranchina said, noting institutional bid volume has jumped more than 300% since the first half of 2024. Veteran retail investors and new entrants alike are crowding into the market, intensifying competition and putting downward pressure on cap rates, particularly for core and core-plus properties. As a result, both debt and equity for retail deals are now more abundant than in recent years, especially for grocery-anchored assets. “Many lenders are actually expressing frustration about the difficulty in placing capital—they’re actively reaching out to us,” Tranchina added.
Fundamentals and demographic trends are driving much of this renewed activity. “Retail leasing fundamentals are strong,” Cheng said, citing robust tenant demand in markets where demographics support sustained spending. Tranchina underscored this investor focus on trade areas with favorable population growth and higher incomes. He also noted, “Retail’s spread differential versus industrial is at its lowest level since 2017.” With borrowing costs moderating, Tranchina observed fresh capital returning to West Coast urban cores and gateway markets—areas that had been out of favor through much of the recovery.
Even as questions linger about rates, tariffs, and macroeconomic stability, both panelists and market participants are recalibrating expectations and looking forward with a renewed sense of optimism. “We’re not fully out of the woods yet,” Marshall concluded, “but if this current trajectory holds, 2025 could see a strong resurgence in transaction activity”—a sentiment echoed throughout the ICSC@Western gathering.
Keep checking back with GlobeSt.com for more updates from ICSC@Western in Palm Springs.
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Source: GlobeSt/ALM