What are the Investment Opportunities and Challenges in Retail CRE?

David Cohn
Jun 14, 2024
CRE Investment

Retail, commercial real estate loans (CRE loans) are defying skeptics who predicted an irreversible doom-and-gloom scenario for this sector a few years ago — critics who thought brick-and-mortar stores would disappear because of online shopping.

This did not happen. Retail is showcasing a remarkable resurgence, thanks to an innovative response to the e-commerce boom and shifting consumer preferences. Retailers are innovating, creating experiences you can't get online (such as in-store events and classes).

Consumer preferences are also shifting. People return to stores to see and touch products before buying them.

 Now more than ever, retail properties are ripe with investment potential. Well-located and well-managed retail properties can be a solid addition to a commercial real estate portfolio. 

What is behind the resurgence of retail CRE?

Recent data has disproven assumptions that retail will inevitably decline, showing a sector teeming with resilience and recovery. Industry giants such as JPMorgan and CBRE report that the market is on a rebound, with neighborhood shopping centers in urban and suburban are as performing strongly, vacancy rates stabilizing or decreasing, and rent growth showing positive trends.

This upward trend proves retail's lasting appeal and profitability.

Although e-commerce has undoubtedly changed the retail landscape, it only represents about 15% of total retail sales, leaving a large portion of the market to physical stores.

Successful brick-and-mortar establishments create immersive experiences that online shopping cannot replicate. This evolution demonstrates that physical retail spaces can coexist with and even enhance the digital shopping experience.

What economic and consumer trends are bolstering retail CRE?

High-interest rates and economic fluctuations have strengthened the retail sector's resilience. Retail sales are expected to grow by approximately 2.6% in 2024. There's a notable shift as consumers return en masse to physical stores.

Shoppers who were once enamored by the convenience of ordering things online now seek the tactile and engaging experiences that only brick-and-mortar stores can offer. This movement — driven by a desire for immediate gratification and personal service — has led retailers to create captivating and interactive environments that reassert the importance of physical retail in the broader shopping ecosystem.

The lines between online and offline shopping are increasingly blurred as retailers use technology to introduce innovative services that merge these two worlds. This synergy meets the evolving expectations of consumers while establishing retail real estate as a versatile and dynamic investment class.

What are the investment opportunities in retail CRE?

Emerging markets like Orlando, Charlotte,Denver, San Francisco, and Orange County, CA, have some of the most robustperformance metrics and limited availability, so there is potential for retailCRE investments in these regions.

Despite challenges like high construction costs and economic uncertainties, the sector's adaptability and resilience continue to create attractive investment opportunities.

That said, successful retail investing hinges on understanding the market. A comprehensive market analysis focusing on consumer spending habits, e-commerce impacts, and geographic attractiveness is crucial for informed investment decisions.

It's more important than ever to investigate how people are spending and where. It's also essential to analyze the impactof online shopping and how it varies by location.

In general, investors will do well to focus on the following types of retail CRE investments in 2024:

  • Suburban open-air centers and markets where there is a high demand for neighborhood and community shopping centers
  • Properties that provide or are capable of adapting to experiential retail
  • Properties benefiting from the online-offline shopping convergence

Faced with high vacancy rates, visionary developers are converting long-empty retail spaces into dynamic mixed-use developments. These revamped areas are reborn as residential spaces, offices, and cultural hubs, turning them into lively community centers that attract people back to local regions.

This strategy tackles the issue of vacant spaces head-on while revitalizing neighbourhoods and bolstering local economies.Forward-thinking investors invest money into technology and sustainability in their retail environments to create long-term value.

Innovative technology can improve the shopping experience while sustainable practices respond to a growing call for environmentally friendly business operations. Retailers and property owners prioritizing these investments are securing their future and attracting a wider audience of eco-conscious shoppers.

Key takeaways 

The retail industry looks set to expand in2024. It is supported by solid market fundamentals, lower vacancy rates, and a steady rent increase (especially in suburban open-air centers).

Investors and developers who want to fully capitalize on this expected growth should concentrate on adaptive reuse projects, experiential retail, and technology-enhanced properties. 

Focusing on areas with rising retail demand—such as specific urban and suburban locations experiencing population growth—can bolster a CRE portfolio. Incorporating sustainability and resilience into development plans will meet the growing demand for green and socially responsible retail spaces.

Achieving success in 2024 will demand flexibility and an ability to respond to shifts in consumer habits and technological advancements. That said, the fundamental aspect of financing remains a critical factor in any CRE investment's profitability.

Whether your goal is purchasing, refinancing, building, expanding, or renovating, you need to secure the most favorable financing terms to achieve the desired returns on your investment. 

Capital Investors Direct - Your retail property financing partner

Capital Investors Direct offers various Retail Property Loan options to meet varied needs. We're dedicated to providing you with the resources and flexibility necessary to succeed in the ever-evolving retail property market. We offer:

  • Bridge loans that let you take advantage of time-sensitive purchase, renovation, or repositioning projects  
  • Hard money loans that give quick access to funding based on your property's value
  • She stated that income loans are for self-employed investors or those with unique income situations.
  • Investment property loans tailored to your specific needs
  • Commercial real estate loans to lay the groundwork for your retail property ambitions
  • Fix and flip loans for quick acquisition and renovation.

With Capital Investors Direct, you can confidently and quickly invest in the retail property market with various financing options. Contact us today for financing solutions suitable for your distinctive investment goals.