Retail Real Estate in 2026: Transaction Volume, Cap Rates, and Investment Trends with Jim Costello
Introduction: Retail Real Estate Is Back in Focus
Retail real estate has made a surprising comeback. Once considered an overbuilt and declining asset class, the sector is now showing renewed strength in leasing activity, occupancy rates, and investor demand.
In a recent episode of America’s Commercial Real Estate Show, host and commercial broker Michael Bull, CCIM sat down with Jim Costello, Head of Real Estate Economics at MSCI, to break down what’s really happening in retail CRE—and what investors should expect next.
Retail Transaction Volume Surges in 2025
One of the biggest stories in retail real estate is the rebound in transaction volume.
Retail deal volume increased 26% year-over-year
Single-asset transactions rose 24%
Retail outperformed traditional leaders like industrial and multifamily
This shift signals a renewed confidence among investors, driven by pricing adjustments and improved fundamentals.
Why Transaction Volume Matters
Transaction volume is a key indicator of:
Market liquidity
Investor confidence
Pricing discovery
As Costello notes, when deal flow increases, it fuels the entire CRE ecosystem—from brokers to lenders to title companies.
Shopping Centers Lead the Retail Comeback
Not all retail assets are performing equally.
Top Performing Segment:
Shopping centers (neighborhood & community centers)
Slower Growth Segment:
Single-tenant net lease properties
Why the Difference?
Shopping centers offer:
Rent growth potential
Percentage rent structures
Flexibility in rising inflation environments
Single-tenant net lease assets, on the other hand, behave more like bonds:
Fixed income streams
Limited upside
Higher sensitivity to interest rate changes
Cap Rates Stabilizing After Volatility
Cap rates are another critical factor influencing investment decisions.
2022: Retail cap rates bottomed near 6%
2024–2025: Stabilized just under 7%
2025: Minimal movement (approx. +10 basis points in some segments)
Why Stability Matters
Stable cap rates:
Reduce uncertainty
Encourage deal-making
Help buyers and sellers align on pricing
When cap rates stop rising, investors are more willing to re-enter the market rather than waiting for better deals.
Pricing Trends: A Mixed Picture
Retail pricing has shown only modest movement:
National retail prices: +0.2% year-over-year
Major metros (NYC, LA, Chicago, etc.): -4.1%
Secondary markets: +1.9%
Key Takeaway
Smaller markets are currently outperforming major metros due to:
Higher liquidity
Increased investor interest
Better pricing stability
Institutional Investors Are Returning
After pulling back during the pandemic, institutional investors are re-entering the retail space.
2025 marked a shift to net buyers
Retail allocations are increasing again
Investors are recognizing strong income fundamentals
Interestingly, retail vacancy rates are now lower than industrial, a major shift in perception.
Supply Constraints Are Fueling Growth
One of the biggest drivers of retail strength is limited new supply.
What Changed?
Overbuilt inventory from the 1970s–80s is being removed
Obsolete malls are being demolished
New development is highly selective
Result:
Lower supply per capita
Stronger landlord leverage
Higher occupancy and rent growth
Economic Outlook: Consumer Health Is Key
Retail performance ultimately depends on the consumer.
Key Factors to Watch:
Job growth (even if slower)
Inflation and cost pressures
Tariffs impacting goods pricing
Consumer borrowing levels
Potential Risk:
A consumer-led recession could significantly impact retail performance if spending declines.
Where Are We in the CRE Cycle?
According to Costello, the current cycle is harder to define than in the past due to:
Changing economic structures
Policy uncertainty
Potential shifts in central bank independence
Inflation risks
This creates a “cloudier” outlook, requiring investors to be more cautious and data-driven.
Key Takeaways for Retail Investors
Retail transaction volume is rebounding strongly
Shopping centers are outperforming net lease assets
Cap rates are stabilizing, supporting deal flow
Secondary markets are leading price growth
Institutional capital is returning
Limited supply is boosting fundamentals
Consumer health remains the biggest risk factor
Final Thoughts
Retail real estate has quietly become one of the most compelling sectors in commercial real estate today. With improving fundamentals, stabilized pricing, and renewed investor interest, the sector is entering a more balanced and sustainable phase.
For investors, the opportunity lies in understanding asset-level dynamics, market differences, and macroeconomic risks.