April 2026
Unfamiliar Recoveries.
Retail healed while no one was watching, AI is reshaping the labor market in two directions at once, and the office rebound is showing up in unexpected places.
In The Market.
Mark Twain Was Right About Retail
But the obituary was retracted while you weren't looking.
Ten years ago, the consensus was to avoid retail. Malls were dying, e-commerce was rising, and the sector was overbuilt. That view was correct at the time and capital fled accordingly.
The story most retail bulls tell today is that while everyone was looking away, the sector quietly healed. Construction collapsed and bad inventory got demolished. Tenants shifted toward services that can’t be replaced by a delivery van. And with fundamentals now the strongest in a decade, the sector is mispriced because capital hasn't noticed yet.
Half of that story is right. The other half is two years out of date.
THE FUNDAMENTALS DID HEAL
Inventory has grown roughly 8 basis points annually over the past decade. More than 130 million square feethas been demolished or repurposed. Vacancy has been below 5% for over four years, comfortably below the 7%+ historical average from the 15 years prior. And with a manageable construction pipeline, rents are growing and the recovery is real. [Costar]
BUT CAPITAL ALREADY NOTICED
Retail transaction volume is up 20% year-over-year. Best-in-class grocery-anchored centers trade at 5.25–5.5% cap rates. CBRE's 2026 investor survey ranks retail the third most-targeted CRE sector. That is what late-cycle price discovery looks like. The marginal buyer today is institutional, not opportunistic.
THE BULL CASE HAS SOFT SPOTS
Net absorption turned positive in early 2026 but remains negative on a trailing twelve-month basis [Costar]. Vacancy is low partly because demand is healthy and partly because nothing is being built. Service tenants pay higher headline rents than the national chains they replaced, but they bring weaker credit, shorter leases, and higher failure rates. They also have not been recession-tested to the extent of the prior generation of retail chains. And the "no new supply" story is partly a math problem as development yields sit below stabilized cap rates. Developers aren't building today because the returns don't pencil. If cap rates compress, supply could come back faster than the narrative suggests.
THE OPPORTUNITY NOW
Retail today looks closer to apartments in 2013 than in 2010 and reflects a recovered sector that institutions are buying, not a contrarian bet. The opportunity is no longer in "retail" as a thematic exposure but in sub-segments where institutional capital hasn't fully arrived.
Medical and healthcare-anchored centers solve the credit-quality problem in the broader thesis: hospital systems and PE-backed operators on long leases, with demand driven by demographics rather than discretionary spending.
Unanchored strip in markets with stable-to-growing demographics, high construction costs, and supply-constrained infill is in the middle of a re-rating. Cap rates are compressing toward grocery-anchored as dedicated institutional vehicles enter the format, and the window to buy ahead of full adoption is open but narrowing.
The segments to avoid are the ones the index buyer is now bidding up – stabilized grocery-anchored at sub-5.5% caps, Class B/C malls at any yield, and service-heavy strip in saturated suburbs.
Twain got his obituary corrected. Retail's correction is already in print, and investors know the sector recovered. The work now is identifying the specific pieces still trading below where institutional capital is heading.
On Our Minds.
i.The mega AI layoffs are no longer hypothetical.
We asked back in Octoberwhether the "era of mega AI layoffs" was hyperbole or something bigger. Six months later, the answer is coming into focus as Amazon cuts 30,000+and Meta announces a RIF on 10% of its workforce. The CRE question we keep coming back to is if Big Tech can run leaner while spending billions on AI infrastructure this year, what does that mean for office demand in the markets these companies anchor?
ii.The other side of the AI labor story.
As Big Tech sheds jobs, the data center buildout is starving for labor to the point where Meta and CBRE just launched a free training programto fill the gap. With technician roles paying up to $300K and data center job postings skyrocketing, could some of the same workers being displaced by AI find their next chapter building and managing its infrastructure?
iii.A peculiar recovery.
Q1 2026 was the strongest office leasing quarter in nearly eight years but the rebound smells different than past recoveries. Secondary markets outpacing gateways (we see you at the podium, Minneapolis and Denver)? Smaller deals replacing big block leases? Momentum building even as office-using employment contracts? Something to keep an eye on.
We remain grateful for your continued partnership and trust. If any of these topics hit close to home - whether it's a lease decision on the horizon, an acquisition or disposition question, or just a conversation about where the market is headed - we'd welcome the chance to think through it with you.
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