Neighborhood retail centers—once treated as the steady but unglamorous corner of commercial real estate—are emerging as one of 2026’s strongest performers.

While office, multifamily, and even industrial markets are navigating pockets of volatility, necessity-based retail centers have exceeded expectations, with rising rents, historically low vacancy, and expanding tenant demand. Typically, they are anchored by grocery stores.
Neighborhood retail’s outperformance in 2026 is pushing valuations upward, but appraisers must be far more nuanced in how they underwrite income durability, tenant mix, and market specific supply constraints.

Appraisers must focus not only on the tenant mix but also on occupancy trends. There may be potential tenants on the sidelines waiting to get into the top-tier centers, and high vacancies in undesirable locations or among non-credit tenants.

Higher-end non-center retail locations will likely continue to thrive, and Class-A centers are expected to retain their value.

Boosted by the ‘Durable’ Consumer

The story is not about a retail renaissance in the traditional sense; it’s about the durability of spending on daily needs, the return of hyperlocal shopping patterns, and the structural advantages of small-format centers in a post-pandemic economy.

Spiking gas prices and overall inflation, however, are concerning factors that could lead to serious problems in the next six months.
Additionally, some retailers are facing potential tariffs, all of which can make doing business challenging.

Struggles to obtain new financing have limited new development. Even still, the national vacancy rate for neighborhood and community centers has tightened to its lowest point in nearly two decades, driven by a combination of limited new construction and a surge in demand from grocers, medical users, fitness concepts, and fast casual operators.

Developers have been cautious for years—high construction costs, expensive financing, and zoning hurdles have kept new supply muted—so existing centers are absorbing demand that would have otherwise flowed into new projects. The result is a landlord favored environment where rent growth is outpacing inflation and lease up timelines are shrinking.

A Shift to ‘Experiential’ Centers

Expectations for the retail sector were low at the end of 2024 and remain in check as centers continue shifting toward an experiential model.

Retailers want smaller, more efficient footprints. Many brands have recalibrated their store strategies, favoring 2,000 to 5,000 square feet of space in high-traffic suburban nodes. Neighborhood centers are the perfect fit.
Another change is that retailers are downsizing to provide a live showroom for online ordering and home delivery.

Markets Leading the Charge

Several regions stand out for exceptional performance, each benefiting from distinct demographic and economic tailwinds:

1. The Southeast: Population Growth Meets Retail Undersupply Markets across the Carolinas, Florida, and Georgia are posting some of the strongest fundamentals in the country. Charlotte, Raleigh-Durham, Jacksonville, Tampa, and Atlanta are all seeing sub 5 percent vacancy in neighborhood centers, with rent growth running well above national averages. These metros continue to attract new residents at scale, and retail supply simply hasn’t kept pace with the influx. Many suburban trade areas that added thousands of new homes over the past five years still have only one or two anchored centers, creating a structural imbalance that favors landlords. Daily needs tenants—from grocers to urgent care clinics—are aggressively competing for space.
2. Texas: Job Growth and Suburban Expansion Fuel Demand Dallas-Fort Worth, Houston, San Antonio, and Austin are benefiting from a combination of strong job creation and rapid suburban development. Texas has become a magnet for corporate relocations and household migration, and neighborhood retail is riding that wave. Grocers, discount retailers, and fitness concepts are expanding at a pace not seen since before the pandemic. In many suburban submarkets, vacancy is hovering near record lows, and landlords are achieving meaningful rent bumps on renewals.
3. Mountain West: Limited Supply Creates Pricing Power Salt Lake City, Boise, and Denver continue to outperform due to constrained development pipelines and steady population growth. These markets have some of the lowest retail construction levels relative to demand in the country. As a result, even modest tenant expansion is enough to push rents upward. Medical retail—dental, physical therapy, primary care, and specialty clinics—has become a major driver of absorption, filling spaces once occupied by soft goods retailers.
4. Southern California: High Barriers to Entry Keep Centers Full Despite broader economic headwinds, neighborhood centers in Los Angeles, Orange County, and San Diego remain exceptionally tight. High land costs and restrictive zoning make new retail development nearly impossible, so existing centers benefit from chronic undersupply. Tenants are willing to pay premium rents for well-located space, especially in dense suburban corridors where household incomes are high, and consumer spending remains resilient.

The information contained in this publication is for informational and educational purposes only. It is not financial, legal, or other professional advice, and you may not rely on it for any purpose. To secure professional advice for your particular situation, you must engage one or more appropriate professional advisors to advise you about your situation.