Unanchored strip centers have emerged as a compelling investment vehicle in commercial real estate across the country. They offer investors a low-risk profile, resilience, and strong returns. Unlike shopping centers anchored by big box retailers, unanchored strip centers rely on a diverse mix of smaller tenants, including local businesses, service providers, and restaurants. This mix of necessity-based, e-commerce-resistant tenancy has made them increasingly attractive to investors seeking stability and rent growth in a shifting retail landscape.
The Appeal of Unanchored Strip Centers
In the past, unanchored strip centers were historically viewed as less desirable due to the absence of a major anchor tenant, which limited their ability to attract a larger consumer draw. Another concern was the limited credit strength of the typical tenant lineup in these centers. However, recent trends show a clear shift in investor sentiment. Unanchored strip center investments are now gaining popularity due to tenant diversity, smaller suite sizes, adaptability, and lower operating costs.
Unlike malls or power centers that depend on national anchors, these centers are typically leased to a blend of local businesses, medical offices, fitness studios, and quick-service restaurants—uses that tend to be more insulated from e-commerce disruption. This tenant mix ensures the center remains relevant even when turnover occurs.
Additionally, unanchored strip centers often benefit from high visibility and accessibility. Positioned along major roads or within dense residential neighborhoods, they draw steady foot traffic from nearby consumers. Their convenience-focused format makes them essential for daily errands and services, reinforcing their long-term viability as community-anchored retail real estate.
Financial Advantages and Lower Risk Profile
Investors are drawn to unanchored strip centers for their strong yield potential and lower risk profile. Compared to single-tenant net lease (STNL) assets or grocery-anchored centers, strip centers have historically traded at higher cap rates, making them an appealing option for investors seeking better yield in retail real estate.
Moreover, unanchored strip centers—known for their lease flexibility—offer smaller suite sizes and shorter lease terms, allowing investors to adjust rental rates to market more frequently. In the Denver Metro for 2024, neighborhood centers (a category that includes many unanchored strips) have posted the strongest annual rental growth at 3.5%, with strip centers following at 2.7% (Source: CoStar).
These smaller suite sizes also translate to lower re-tenanting costs and reduce long-term vacancy risks. Recent data indicates that unanchored strip centers are achieving record-high occupancy rates, with many markets across the country reporting 95-96% levels. The lack of new retail supply has further increased demand, making these low-vacancy retail properties even more valuable.
In the Denver market, strip centers have the lowest vacancy rate among all retail property types at 4.3% (source: CoStar). Another factor driving strong occupancy is the shift from ground-up development to redevelopment, as developers prioritize reinvesting in existing sites over new construction, limiting the amount of available space for tenants looking to relocate or expand. All of this contributes to steady, accretive cash flow for owners of well-located unanchored strip center investments.
Some headwinds have emerged in the Denver retail market, specifically the rising operating costs being passed on to tenants. Higher property taxes and insurance rates have started to put pressure on these tenants and may limit the landlords’ ability to push base rents in the near term.
Resilience in the Face of E-Commerce
As brick-and-mortar retail evolves, unanchored strip centers continue to serve as essential hubs for local commerce. While e-commerce has disrupted traditional retail formats, these centers have remained largely unaffected due to their focus on service-based and experiential tenants. Businesses such as salons, medical clinics, and fitness centers provide offerings that are difficult to replicate online.
Additionally, more retailers now rely on their physical locations for same-day pickups, returns, and last-mile fulfillment, reinforcing the value of convenience-based retail. As hybrid work schedules persist, consumers are favoring nearby, accessible retail options. In response to these changing habits, strip centers continue to evolve—maintaining relevance and consistent demand across diverse tenant categories.
Expanding Buyer Pool
Historically, the smaller deal sizes and fragmented ownership of unanchored retail centers limited institutional involvement, creating opportunities for smaller firms and private investors. Today, however, funds, public REITs, and syndicators are creating specialized investment vehicles to aggressively chase these types of assets—drawn to their income stability and upside potential.
Institutional investors often focus on growth metrics like compound annual growth revenue (CAGR) and internal rate of return (IRR). With many strip centers being previously owned by private investors, these funds see opportunities to unlock value by modernizing operations, pushing rents, and generating accretive cash flow over the hold period.
As this buyer pool grows, competition for quality strip center assets has increased, compressing cap rates—even in a high-interest environment. Many of these investors are transacting all-cash, positioning them to move quickly and secure deals.
Conclusion
Unanchored strip centers offer a resilient, adaptable, and profitable retail real estate investment opportunity. Their tenant diversity, financial advantages, and resistance to e-commerce disruption make them a compelling choice for both private and institutional investors. As demand for low-vacancy, convenience-based retail assets continues to rise, those who capitalize on this trend are positioned to benefit from consistent returns and long-term stability.
Have questions about navigating today’s CRE market? Contact us for expert guidance and strategic insights.
As featured in Colorado Real Estate Journal.
Carly Gallagher Kelly
Director, Investment Sales
Carly@BlueWestCapital.com
720.828.6290
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