Necessity-Based Retail Expected to Outperform Through Year-End
Retail real estate fundamentals are projected to remain solid through the end of 2025, supported by sustained demand for grocery-anchored and necessity-based properties, according to First National Realty Partners (FNRP). Despite lingering macroeconomic uncertainty, tight supply, steady leasing activity, and durable cash flows are creating favorable conditions for landlords and investors.
FNRP noted that robust tenant demand coupled with limited new construction will keep occupancy rates elevated, with retail vacancies expected to remain stable or edge only slightly higher—still well below historical averages. Grocery-anchored shopping centers and power centers continue to outperform other formats, with discount/value retailers and food service operators driving much of the leasing momentum.
“Even as some brands have adjusted expansion plans due to economic uncertainties, overall demand for prime necessity-based retail space remains high,” said Sam Collier, CRO at FNRP. “We continue to see momentum from tenants like Aldi, Dollar Tree, Dollar General, TJX Companies, Hibbett Sports, Jersey Mike’s, Wingstop and Raising Cane’s, all of which align with consumer preferences for value, convenience, and experience.”
FNRP also observed that more quality retail assets are now coming to market, setting the stage for an active close to the year. With rent growth at multi-year highs and elevated construction costs constraining new development, existing necessity-based assets are positioned to benefit further.
“With rent growth at one of its strongest levels in years and high construction costs limiting new development, existing retail assets are well-positioned for rent growth,” added Michael Hazinski, CIO at FNRP.
On the financing side, lender appetite for necessity retail remains strong, with grocery-anchored and necessity-based centers attracting competitive loan terms and being viewed as lower-risk collateral. At the same time, lenders are applying stricter underwriting standards, placing greater emphasis on tenant quality, lease duration, and trade area demographics.