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An Analysis of the Unanchored Strip Center
When discussing the entire retail sector, attention tends to focus on power centers, lifestyle centers and even regional malls. A new report from Marcus & Millichap highlights an unheralded retail property type – the unanchored strip center.
These 10,000- to 50,000-square-foot properties consist of a row of stores occupied by non-anchor retail tenants. The tenant type runs to restaurants, hair and nail salons, laundromats, dry cleaners, and other niche types. These centers might be smaller, but they’re strong. According to Marcus & Millichap, this property type is “in a position of strength, amid a period of household budget tightening and big-box closures.”
Demand Outstripping Supply
Marcus & Millichap analysts indicated that subsector demand “more than quadrupled new space delivery, compressing vacancy to 4.7%.” One reason is the driver behind that demand. Specifically, consumers prefer more convenient shopping options; “those that can’t be easily replicated online is likely to rise” as long as gas is more expensive and hybrid work schedules continue. Because of this, Marcus & Millichap analysts indicate that unanchored strip center owners with diverse tenant bases will benefit.
Larger Occupiers Eyeing the Space
The report explained that tenants who previously avoided the subsector are now carefully considering it due to consumer habits. Bath & Body Works and Food Locker are leaving their larger mall spaces behind and taking up residence in these smaller storefronts due to discounted operating costs and a higher level of foot traffic.
Institutions and REITs are also taking notice. “A handful have recently sold their larger shopping center holdings or recapitalized a sizeable portfolio with plans to reinvest funds into collections of strip centers,” the report said.
The Appeal of Discounted Pricing
Marcus & Millichap analysts explained that sub-$200 per square foot pricing is common with these assets across all market sizes. Buyers interested in larger metros are examining high-growth Sun Belt markets like Phoenix, “which recorded the third-highest strip center transaction total nationally in 2023,” according to the report.
Private investors targeting smaller areas might focus on properties in college towns within walking distance of campus. Furthermore, in the era of high interest rates, the unanchored strip center could help facilitate 1031 exchanges, potentially bypassing bank borrowing.
- ◦Sale/Acquisition
