The retail apocalypse narrative made a critical error in its analysis: it treated all retail as a monolith.
It's not. There are at least two fundamentally different categories of retail, and they have had almost nothing in common in terms of their trajectory over the past decade.
Category 1: Discretionary retail
Discretionary retail sells products you want but don't urgently need, and that can be shipped conveniently. Department stores. Specialty apparel. Consumer electronics. Home goods. Toy stores. Bookstores.
This category was legitimately decimated by e-commerce. The convenience, selection, and price transparency of online retail made physical discretionary retail largely redundant for most consumers. The physical store's advantage (curation, discovery, the ability to touch and try on) proved insufficient to overcome the convenience gap. Category 1 retail died, or is dying.
Category 2: Needs-based, service-oriented retail
This category looks completely different. Grocery stores, pharmacies, dollar stores, quick-service restaurants (QSRs), medical and dental offices, nail and hair salons, fitness studios, urgent care clinics, childcare centers, pet services, dry cleaners, auto parts.
What unites these tenants? They either provide a service that requires physical presence, sell a product needed immediately (groceries, pharmaceuticals, fuel), or generate repeat-visit behavior driven by routine rather than discretion.
Amazon cannot fulfill a dental cleaning. DoorDash cannot replicate a haircut. The click-to-deliver model has a fundamental limitation with services, and services are the fastest-growing segment of consumer spending.
The data on needs-based retail
Vacancy rates in grocery-anchored and needs-based neighborhood retail centers have remained lower through multiple economic cycles than virtually any other commercial real estate category. During COVID, the most severe stress test in recent retail memory, grocery-anchored retail showed remarkable resilience. The grocery stores were essential. The surrounding service tenants, those that remained open, thrived on increased local foot traffic as people stayed close to home.
Post-COVID, the trends accelerated. Remote work increased the importance of neighborhood amenities. People spending more time in their home neighborhoods spend more at their local nail salon, QSR, and urgent care clinic. Neighborhood retail benefited from the very trend that destroyed central business district retail.
The valuation discrepancy
Here's the interesting part: institutional capital was slow to recognize this bifurcation. The "retail is dead" narrative painted with a broad brush that depressed cap rates for neighborhood retail alongside genuinely troubled mall-based retail.
That created — and in certain markets continues to create — a pricing opportunity. Buying assets with strong, needs-based tenant bases, healthy occupancy, and long-term lease structures at 7-9% cap rates, when the credit quality and durability of the cash flow might justify more aggressive cap rates, is the core of the opportunity.
The market is correcting this mispricing, but not uniformly. In secondary and tertiary Midwest markets especially, the opportunity window remains open.