Open-Air Shopping Centers Lead Retail Recovery

These shopping destinations include larger, open-air shopping complexes as well as strip malls, which typically feature an anchor store and several smaller stores or services like pharmacies and fitness studios. Grocery stores are often the anchor and help drive their success, said Brandon Isner, head of Americas retail research at CBRE.

“It’s almost an automatic flow of foot traffic, because grocery is the greatest retail need,” he said.

Grocery stores never closed during the pandemic. They are still benefiting from a shift to at-home cooking that started early on in the pandemic, when indoor dining was closed, said Ethan Chernofsky, vice president of marketing for data analytics firm Placer.ai.

The increasing popularity of grocery-delivery services like Gopuff and rapid-delivery providers such as New York City startup Gorillas pose a potential threat to the continued growth of traditional grocery stores.

Still, investors are recognizing the appeal of grocery-anchored retail. Such shopping centers drew $5 billion in investment activity last quarter, according to CBRE, representing the second-most active quarter in 10 years.

Kimco Realty Corp. owns nearly 100 million square feet of shopping-center space, mostly in the suburbs and mostly grocery-anchored. Kimco implemented curbside pickup across its portfolio at the start of the pandemic. Foot-traffic volume is now above 2019 levels, said Chief Executive Conor Flynn.

Foot traffic to grocery stores nationwide is up 3.6% so far this year compared with two years ago, according to Placer.ai. The firm also found that, overall, foot traffic to grocers remained strong even after restaurants reopened and in-person dining picked up steam.

Shopping centers have also benefited from people moving to the suburbs, retail analysts said, and the flexibility of remote work has made it easier for people to shop close to home and on weekdays. Despite the pandemic-prompted boom in online shopping, bricks-and-mortar retail has remained surprisingly resilient, with e-commerce representing just one-fifth of core retail sales, CBRE’s Mr. Isner said.

Retailers are also using their existing stores as distribution and fulfillment hubs, a strategy that is paying off as it becomes increasingly difficult to find industrial space for last-mile warehouses. Making it easier for customers to buy online and pick up or return items in store has the added benefit of drawing more traffic to shopping centers, Mr. Flynn of Kimco said.

“I think retailers are just starting to recognize how valuable that store is because it takes a very long time and it’s very expensive to build these massive distribution centers,” he said.

Neighborhood-embedded shopping centers that could accommodate outdoor experiences were well positioned to quickly recover from the pandemic. In Pennsylvania, the upscale King of Prussia Town Center is part of a mixed-use development that includes residential units and 1 million square feet of commercial space.

The shopping center also has a large “town square” where it hosts about 30 events a year, including live music, outdoor movie nights and yoga classes, to draw foot traffic for tenants, said Joseph Mancuso of CBRE Investment Management, which owns the shopping center.

“We had done a lot of these events prior to Covid, but it turned out having the outdoor space—we didn’t realize how much of a blessing that would be,” said Mr. Mancuso. He added that leasing this year is outpacing 2019 and rents have recovered to pre-pandemic levels.

In Northern Virginia, the landlord of Reston Town Center gave rent deferrals and other concessions to keep struggling retail tenants afloat last year, said Doug Linde, president of Boston Properties Inc., which owns the shopping center. Some tenants, representing about 40,000 square feet, or 10% of the town center’s total retail footprint, closed anyway. But Mr. Linde said he quickly filled those vacancies and leased additional space.

“In the meantime, the ones that were able to stick with us are doing fabulously,” Mr. Linde said, adding that rent prices and collections are back to pre-pandemic levels while retail sales are now outpacing 2019. “We’re really comfortable that the recovery has taken hold.”

Write to Kate King at [email protected]