An open-air strip retail center in Richmond, Virginia.Courtesy of NuveenA version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox.It would be an understatement to say that retail real estate has had a rough ride. It started with the birth of e-commerce and escalated with the Covid-19 pandemic. Its recovery has been splintered, given the varying subsectors of retail, from large indoor malls to big-box centers to grocery-anchored, open-air strip centers.It’s that last subsector that Chad Phillips, global head of Nuveen Real Estate and responsible for over $140 billion of commercial real estate equity and debt investments, says is the big opportunity today. “We’ve leaned into this resilient, open-air strategy the last two years pretty heavily,” said Phillips. That’s grocery-anchored centers with, perhaps, a CVS and a pizza place and the like. Vacancy rates in these spaces were 7.8% at the start of 2016, but came down to 4.4% by the beginning of this year, according to data from CoStar Group.”It survived Covid. It survived the Amazon effect,” Phillips said. “The occupancies within our grocery-anchored, open-air portfolio in good locations is over 95% leased.”Whenever a tenant closes its doors, Nuveen is able to refill the spot quickly due to such strong demand, Phillips said. He admitted that retail real estate had been overbuilt for a long time in the U.S. Eventually, developers became more disciplined, especially with the birth of e-commerce. That resulted in a correction that created something of an undersupply today. “The [capitalization] rates that you can buy them at are fairly attractive,” said Phillips. “So the total returns are good. You’re buying at far less than replacement cost. So you put it all together, and it’s a very resilient, essential real estate need where we can make strong, risk-adjusted returns.”While larger, indoor mall traffic is rising, especially in th …
