Retail Resilience: U.S. Investment Market Surges in Q1 2025

U.S. retail investment volume in Q1 2025 grew 13% year-over-year, excluding entity-level deals, fueled by more transactions and larger average deal sizes. However, compared to the previous quarter, total volume slipped 7%, reflecting uncertainty from political changes and trade tensions. Albeit the Fed's planned interest rate cuts are expected to boost investment activity this year.

Q1 2025 investment volume surpasses the prior year, cautious optimism for the coming months.

The retail investment landscape in Q1 2025 demonstrated resilience, with transaction volumes reaching $9.8 billion. This figure represents a notable increase of 13% and 12% compared to Q1 2024 and Q1 2023, respectively. However, the current high-interest rate environment has impacted the market, resulting in a 48% decrease from the record-breaking Q1 2022 and a 26% reduction compared to the Q1 average from 2014 to 2019.

Several U.S. regions contributed to this positive trend. The Mid-Atlantic region led with a significant 38% year-over-year growth, followed by the West at 32%, and the Southeast at 17%. In contrast, the Southwest region experienced a 32% decline, primarily due to the previous year's elevated volume from the sale of the $283 million River Oaks District.

Urban retail properties continue to attract investor interest, particularly in the Northeast. A prime example of this trend is Uniqlo's $352.5 million acquisition of its flagship store in New York City, underscoring the ongoing appeal of prime urban retail assets.

The investment forecast for the rest of 2025 maintains a cautiously positive tone, influenced by the Federal Reserve's recent commitment to two interest rate reductions this year and in 2026. However, the evolving political landscape and ongoing trade tensions introduce an element of uncertainty that is expected to persist throughout the year. Investor strategies are likely to prioritize grocery-anchored and unanchored strip centers, reflecting a preference for stable, necessity-driven retail assets. Additionally, high-value transactions in urban retail locations and big-box shopping centers are expected to attract significant investor attention, indicating a continued interest in prime retail assets despite the broader economic uncertainties.

Grocery-anchored centers remain the preferred asset class in retail investment, prized for their consistent returns, stable tenant base, and resilience against e-commerce disruption and economic fluctuations. These centers dominated the multi-tenant retail investment landscape in Q1 2025, accounting for 31% of total transaction volume. While private capital continues to be the primary investor in this retail format, Q1 2025 saw a notable surge in activity from the public and private REITs. They closed deals totaling $531 million, including high-profile acquisitions such as the Del Monte Center, Pinecrest portfolio, Village Commons, Westgate North, and Lantern Plaza. However, recent stock market volatility may temper REIT activity in the near term. Institutional investment in grocery-anchored centers saw a significant uptick, quadrupling compared to Q1 2024, with particular focus on the Southeast region. This trend is expected to continue, as institutional investors increasingly target this resilient retail sector, recognizing its ability to weather various market conditions and deliver stable returns.

The resurgence of urban retail continues, particularly in premium markets like New York City where entry barriers are high. The growing number of high-net-worth individuals is driving demand for luxury retail in high-street locations, resulting in several notable acquisitions by luxury brands this year. Prominent transactions include Uniqlo's $352.5 million purchase of its New York City flagship store, Apple's $88 million acquisition of its Boston flagship, and Moschino's $25.4 million investment in its New York City flagship location. These strategic moves underscore the value placed on prime retail spaces in key urban corridors. Given the scarcity of premium retail locations in high-street areas and the strategic importance of establishing a strong market presence, more significant acquisitions are expected in the near future. This limited availability of prime spaces is likely to intensify competition among retailers and potentially elevate barriers to entry for new market entrants, further solidifying the positions of established brands in these coveted urban retail landscapes.

Investment interest in big-box power centers and malls has surged, maintaining momentum from last year into 2025, with investors particularly drawn to value-add opportunities. The first quarter saw an impressive 82% increase in total investment volume for these retail formats compared to Q1 2024. This significant uptick is primarily fueled by private capital, with some institutional investors also participating in the trend. The appeal lies in the current market conditions, which offer the chance to acquire these high-value assets at discounted prices. Given the favorable buying conditions, this investment trend is expected to persist throughout the year. Investors are likely to continue targeting these retail formats, recognizing the potential for substantial returns as they capitalize on the opportunity to purchase premium assets at a discount.