Retail REITs enter the final quarter of 2025 with solid momentum, reflecting robust fundamentals across the mall and shopping center segments. Undersupply of new retail space and high occupancy are resulting in strong pricing power for REITs across the sector. At the same time, consumer spending has remained resilient, despite the challenges of tariffs and inflation, with a clear divide evident between value-oriented shoppers and those seeking premium retail experiences.
REIT.com spoke with Ken Billingsley at Compass Point Research & Trading, LLC, Alexander Goldfarb at Piper Sandler, Paulina Rojas Schmidt at Green Street, and Handel St. Juste at Mizuho Americas for their thoughts on the retail REIT sector.
How would you broadly assess the state of retail real estate fundamentals for the final quarter of 2025, and into 2026?
Ken Billingsley: Fundamentals are assessed as overwhelmingly strong and resilient across both the mall and shopping center segments, driven by severe undersupply of new product. The outlook for 2026 is positive, with growth expected to accelerate as signed leases open. Both segments are outpacing the broader REIT industry and the lack of new supply and conversion of bankrupt spaces into higher-paying tenants provides strong underlying NOI tailwinds into 2026.
Alexander Goldfarb: The group stands against the backdrop of some of the best tailwinds in decades–lack of supply, healthy occupancies, positive rent spreads, and now declining interest rates–and yet the REITs have languished. AI, crypto, and gold are all the rage. REITs offer similar inflation protection as gold and yet aren’t attracting fund flows. So, we’ve been hammering home, in our research, the need for REITs to focus on earnings, cash flow, and dividends, not same store NOI, which doesn’t necessarily tie to the bottom-line.
Paulina Rojas Schmidt: Retail fundamentals remain solid, driven by strong tenant demand and the lack of significant new retail developments. This favorable supply-demand imbalance has benefited landlords, as evidenced by low vacancy rates across various retail formats. Landlords have been exploring ways to take advantage of the solid backdrop and secure more favorable lease terms (higher rents, higher rent escalators, etc.).
Strip centers experienced a challenging start to 2025 due to a wave of retailer bankruptcies that caused occupancy to dip in both quarters. However, the sector has demonstrated resilience, with vacated spaces released faster than anticipated, allowing lease rates to remain high at around 95% in REIT portfolios. Class A malls have also performed well, supported by solid leasing activity and minimal tenant bankruptcies. The outlook for 2026 is encouraging, with both mall and strip center REITs expected to increase NOI above historical trends.
Haendel St. Juste: Retail real estate fundamentals remain strong. Demand for space remains high, portfolios are full, and new supply remains low…which collectively supports continued pricing power for landlords. In addition, there is a sizable backlog of signed leases waiting to come online (signed but not yet opened rent, SNO), which is providing incremental near-term earnings visibility. We also expect bad debt to remain below long-term averages into 2026.
What’s the current state of retailer health and what impact is that having on space needs and leasing trends?
Goldfarb: Retailers are doing well with regard to expanding, taking space, and credit issues remaining in check. So far, the store closings experienced in the first half of the year haven’t spilled into the second half, but everyone is wide-eyed just in case. However, the fact that retailers are taking space as-is, or buying leases out of bankruptcy auctions, attest to the rabid demand for any availability.
Rojas Schmidt: From a macro perspective, the landscape has been marked by a weakening economy and shifting trade policies. However, consumer spending has remained overall resilient, with retail sales ex-motor and gas up year-to-date on both a nominal and real basis.
In the most recent earnings season, retailers typically located in strip centers and malls generally beat consensus expectations, though management commentary was cautious. Several executives warned of a tougher second half of 2025, as the full effect of tariffs is expected to hit later in the year, likely pressuring margins.
Nonetheless, the overall strong performance so far has led most companies to stick with their store opening plans, choosing to push through near-term uncertainty. New store openings remain a key growth driver for most retailers, who are mindful of the retail sector’s low vacancy rate and eager to secure high-quality retail space before it becomes unavailable.
St. Juste: Tenant/retailer health remains strong, and well-capitalized tenants are continuing to expand their footprint as they look beyond tariff concerns and make longer-term real estate leasing decisions. And while concerns about the impact of tariffs continue to be top of mind, there does not yet appear to be any impact on sales, foot traffic, or tenant health.
Billingsley: Retailers are performing well in high-quality locations, resulting in a landlord-favorable leasing environment characterized by aggressive rent growth. Landlords possess record pricing power across the entire retail spectrum. Retailers' future space demand is secured in large SNO pipelines, which represents significant future NOI growth. Average leased occupancy remains high, around 95% for both segments. Landlords are successfully backfilling space left by bankrupt tenants with higher-credit tenants paying meaningfully higher rents.
What are you seeing in terms of how and where consumers are spending?
Rojas Schmidt: Consumers appear to be increasingly selective. Several retailers have noted a growing trend of more discerning spending behavior, particularly among lower- and middle-income shoppers. General merchandise and grocery companies have also reported that customers are trading down to lower price points and actively seeking value.
Billingsley: The operational data implies a bifurcated consumer focus on both value/convenience and premium/experience. The overall resilience of spending is currently driven by a segmented consumer base. High leasing spreads and robust NOI growth confirm strong, sustained consumer patronage of the essential, service, and value-oriented tenants typically found in strip centers. Mall owners, particularly those with premium assets, are leveraging consumer preference for high-end and luxury retail and experiential elements, supporting strong leasing spreads.
Goldfarb: The health of the American consumer has long been a favorite parlor game of talking heads but has proven to be resilient over the decades. The biggest challenge today is the approximately 25% aggregate inflation from 2021 to 2024, which has raised prices from supermarket shelves to fast food drive-throughs. However, people figure out how to shop, but affordability is the focus of everyone.
St. Juste: Despite concerns about a stretched consumer, overall retail sales remain healthy at a high level. However, sales do appear to be slowing/plateauing, and we have seen some substitution/trade-down effects. Among retail categories, we expect defensive/essential categories to be more resilient while discretionary categories should face more headwinds…especially for less productive centers and lower-income consumers.
Describe the capital market environment for retail REITs today?
Goldfarb: The recovery of the debt markets, declining interest rates, and unsecured spreads near record levels stand in contrast to the equities, which are trading at discounts to NAV.
Billingsley: The capital market environment is defined by strong corporate liquidity for the sector leaders, but despite solid fundamentals there is a pervasive deep valuation discount relative to underlying asset value. Market leaders are exceptionally liquid. Simon Property Group (NYSE: SPG) leads the sector with $9.2 billion in liquidity. The shopping center segment collectively holds approximately $6.5 billion in liquidity. This strong access to capital is a key competitive advantage. All REITs are facing higher interest costs on maturing debt.
St. Juste: Access to capital today remains relatively favorable. Recent rate cuts, and the expectation for future rate cuts, have resulted in lower borrowing costs, which has also helped stimulate incremental transaction activity.
We have seen public REITs access 10-year debt in the 5% range and five-year debt in the 4% range…which is easing some of the dilutive debt refinancing headwinds.
Rojas Schmidt: On the equity side, share performance has been underwhelming year-to-date (as of mid-October), with strip center REITs down slightly on average and mall REITs up modestly.
Most importantly, with strip center REITs trading on average slightly below estimated NAVs, equity issuances have not been the primary source of growth funding. Instead, free cash flow, combined with debt and proceeds from asset dispositions, has been the main source of capital. Debt remains readily available across retail formats, with all players enjoying smooth access.
Which segments or markets within the retail REIT segment do you see offering the most compelling opportunities?
Goldfarb: Malls have shown the biggest turn around. They often bore the worst of the “death of physical retail” narrative previously and now even B-malls are seeing growing demand due to lack of supply.
Rojas Schmidt: From a private investor’s perspective, we believe class A malls offer an attractive opportunity, with returns that exceed the average across other real estate sectors. The combination of high initial cap rates and solid growth, supported by strong retail fundamentals across the board, is expected to drive robust returns. The outlook for strip centers is also positive. However, with lower initial cap rates and higher capital expenditure requirements, strip centers rank second among retail real estate in expected returns for private investors.
St. Juste: We expect grocery-anchored shopping centers to continue to benefit from strong foot traffic/leasing demand and note that retailers want to be closer to the customer for omnichannel/BOPIS (buy online, pickup in stores) initiatives.
How would you characterize the current volume and nature of transaction activity within the retail REIT segment?
Billingsley: Transaction activity volume has slowed due to higher interest rates, but the nature of the activity is highly strategic and accretive, driven by a focus on quality and opportunistic capital deployment. Highly liquid REITs are actively pursuing acquisitions on an accretive basis, often using JV structures or match-funding with asset sales to overcome current valuation mismatches. Mall owners are prioritizing internal redevelopments to increase asset productivity and cash flow, which is a major source of capital deployment in the current environment.
Further transaction activity is crucial to validate private market valuations and close the significant discount at which public retail REITs currently trade.
St. Juste: We have seen an uptick in activity in recent months as both public REITs and private capital step up capital deployment given the lower cost of debt and steady cap rates. Grocer anchor cap rates remain very low (~5%), which is driving some REITs to acquire larger/ bigger ticket assets (less competition, higher yields) where yields are closer to 7% and some upside from mark to market and merchandising opportunities. Given lower financing costs and the wall of capital that has been raised by private investment vehicles, we expect transaction activity to increase going forward.
Goldfarb: The biggest lament among REIT portfolio managers is lack of fund flows. This is why we are so focused on earnings, cash flow, and dividends, not same-store NOI.
Rojas Schmidt: Broadly speaking, the transaction market for retail real estate is active, with volumes up roughly 20% year-over-year. Particularly notable is that transaction volumes for large deals, those exceeding $100 million, have more than doubled compared to 2024. There is clearly strong appetite for retail real estate across formats. That said, as expected, cap rates vary by format depending on the risk-reward profile. Grocery-anchored shopping centers continue to attract the most bidders and command the lowest cap rates.
Are there any additional trends or factors you anticipate keeping an eye on as you monitor the retail real estate segment going forward?
St. Juste: As of now, we haven’t truly seen the full impact of tariffs on consumer P&Ls and on leasing demand. Thinning of retailer margins due to tariffs and higher inflation may reduce store opening plans, depending on the retail category and the country where they are importing goods from.
Elsewhere, expectations for the upcoming holiday shopping season are still fairly constructive, but we are watching for signs of impact from tariffs and lower inventory levels.
Billingsley: We’ll be closely tracking: the successful conversion of the large SNO pipelines into paying physical occupancy and realized NOI growth across both malls and shopping centers; how leaders deploy their massive capital base in the coming quarters; interest rate and valuation convergence; and how mall owners manage the transition of ‘temp-to-perm’ tenancies.
Goldfarb: Retail’s rebound is a reminder that when consensus says something, it’s often not the case. Humans are social creatures who like to shop in-person. The internet was never going to replace physical stores, but would complement them, much the same as EVs would never replace traditional cars but rather be an additional offering. The key for retail is the merchandise and creating shopping excitement. The ancient bazaars still live on in the Middle East, but the vendors have changed–malls and shopping centers are no different.
Rojas Schmidt: Retail fundamentals have experienced a notable resurgence post-pandemic and have so far withstood an economy marked by multiple uncertainties. In the short term, the focus remains on the health of retailers and consumers. Looking longer term, we are closely monitoring how landlords’ negotiating power evolves and the extent to which they can sustainably leverage strong fundamentals to push rents higher.
Additionally, we are paying close attention to conditions for new construction. The lack of new supply has been a key factor supporting the recent upswing in retail fundamentals. So far, new developments have generally not been financially viable, and the outlook points to continued limited supply, but the trend requires ongoing monitoring.