Navigating a Rapidly Changing Retail Industry
Takeaways from the ICSC Las Vegas Convention
Over 20,000 real estate investors, developers, property managers, retailers and brokers convened in Las Vegas last month for the annual ICSC convention. In the midst of a volatile market, attendees sought answers on how to navigate current challenges impacting the retail industry. Below were three of the biggest themes to emerge.
Retail resiliency amid market headwinds
Just a few years ago, the outlook for the retail industry was grim. Consumers weren’t shopping due to the pandemic, brick-and-mortar stores were closing and many large retailers were filing for bankruptcy. However, the market surprisingly bounced back post-covid as consumers returned to stores with a desire to spend.
As the real estate industry as a whole now contends with new challenges including higher interest rates and economic uncertainty, the silver lining is that retail has been somewhat less impacted than other asset classes. Office continues to face return-to-work challenges and industrial is contending with supply chain bottlenecks and overall supply shortages. While retail has not been entirely insulated, the fundamentals have remained quite sound – leasing remains strong, occupancy is high and companies are continuing to announce new store openings. The consensus at ICSC was that there are certainly challenges ahead, but that the retail industry is well positioned to weather the storm and come out in a position of strength.
Trend toward mixed-use retail
One of the biggest challenges in today’s retail environment is adapting to the growing and changing needs of the everyday consumer. As a result, landlords, retail owners and developers are increasingly exploring mixed-use developments – which blend multiple uses such as retail, residential and entertainment. For instance, a landlord may decide to redevelop an existing retail center by incorporating entertainment facilities, residential apartments and hotel amenities that attract consumers while also helping drive sales and boost profits. Landlords are also embracing a more experiential approach to retail centers by incorporating movie theaters, fitness centers, spas and other lifestyle attractions. Particularly now when ground-up retail development is not the most attractive given the current market, converting existing retail centers into mixed-use sites is a unique way for landlords to maximize value and grab consumer attention.
Sale-leasebacks as a solution for rising development costs
Rising interest rates continue to impact retail development. Developers’ capital costs have increased drastically, and as a result they are demanding higher asking rents from retailers. This is forcing more retailers to turn toward in-house development, which means the development costs are held on the balance sheet of the company. To offset these costs, retailers are exploring sale-leasebacks – where a company sells its real estate to an investor for cash and simultaneously enters into a long-term lease. This enables the retailer to receive a significant cash infusion while maintaining full operational control of the property.
Developers can also take advantage of the sale-leaseback model. If they’re developing a building in which a tenant has already been secured, developers can work with an investor on a forward commitment in which the investor funds construction costs and acquires the building upon completion, or the investor purchases the building once complete. This enables the developer to recoup costs while still collecting a development fee.
With an interest rate decrease not likely for 2023, sale-leasebacks are expected to continue growing in popularity for retailers looking to expand their footprints and developers, providing opportunity for investors that specialize in these types of transactions (like W. P. Carey!).
Related Topics:
You May Also Like:
Net Lease Retail is at an Inflection Point
As retail investors and operators convene in Las Vegas for ICSC, the conversation around net lease retail feels both familiar and different. Familiar, because the net lease retail market continues to demonstrate resilience and stability. Different, because the drivers shaping today’s retail real estate decisions are evolving—creating new opportunities for operators and investors alike. From rising sale-leaseback activity tied to M&A, to more intentional approaches around store size and format, today’s net lease retail market is being shaped by a combination of strategic growth decisions, changing consumer behavior and a more balanced transactional environment. These are several of the key trends taking center stage ahead of the conference. Sale-leasebacks Follow Strategic M&A Activity One of the most consistent drivers of sale-leaseback volume in retail today is merger and acquisition activity. Whether it involves private equity-backed platforms consolidating regional brands or strategic buyers acquiring complementary concepts, transactions often prompt companies to reassess their balance sheets—and real estate frequently emerges as one of the most efficient sources of capital. In many cases, companies come out of acquisitions with real estate portfolios that were not central to the strategic rationale of the deal. Sale-leasebacks allow operators to unlock that capital, streamline their asset base and redeploy proceeds into higher-return priorities such as new stores, technology investments or debt reduction. What stands out in the current environment is that this activity is not limited to highly leveraged situations. Healthy, growing retailers are increasingly using sale-leasebacks proactively as part of longer-term capital planning, particularly when M&A introduces scale or accelerates geographic expansion. Sale-leasebacks continue to provide a compelling alternative to traditional financing for businesses seeking flexibility and predictability. The Evolution Toward Smaller, More Flexible Footprints Another defining trend across retail is the ongoing evolution of physical store footprints. While large-format locations remain relevant in certain categories, many retailers are gravitating toward smaller, more efficient concepts that align with omnichannel strategies and localized demand. These stores are often designed to serve multiple functions—acting as showrooms, service hubs, fulfillment points or a combination of the three. Flexibility has become increasingly important, both in store design and in location strategy, as retailers respond to shifting consumer behavior. From a net lease perspective, this evolution places greater emphasis on unit-level fundamentals. Smaller footprints can generate compelling cash-on-cash returns, but success depends heavily on the alignment between location, concept and the operating model. The underwriting process for net lease retail investors is therefore increasingly focused on how these formats perform across markets, how scalable they are and how they fit into a retailer’s broader growth strategy. Stabilized Cap Rates Bring Predictability Back to the Market After a period of volatility driven by rapid interest-rate movements, cap rates across the net lease retail space have begun to stabilize. While pricing discipline remains essential, the return of predictability has had a meaningful impact on transaction activity. Clearer valuation benchmarks make it easier for buyers and sellers to transact. Investors can underwrite opportunities with greater confidence, tenants can assess capital alternatives more thoughtfully and deals are less likely to stall amid uncertainty around pricing expectations. That said, credit quality, location fundamentals, lease structure and real estate criticality remain core considerations. However, in a more balanced environment, high-quality assets supported by strong operators are finding liquidity, and capital is moving more efficiently. Looking Ahead As ICSC Las Vegas approaches, there is optimism across the net lease retail landscape. While uncertainty remains part of the broader economic backdrop, the conversations in Las Vegas are expected to reflect an industry that has evolved through recent cycles and continues to find opportunity through change. For net lease retail, the current environment represents less of a reset and more of a recalibration—one that rewards sound fundamentals, flexibility and a long-term investment approach.
Net Lease Retail Demand Follows Where Retailers Are Growing
The US net lease market is experiencing a resurgence. Valuations reset throughout 2025, meaning the bid-ask spread narrowed. And in spite of economic headwinds, net lease volumes increased by 24% year-over-year for the fiscal year ending in Q3 2025, according to CBRE. For Michael Fitzgerald, managing director and head of US retail at W. P. Carey, finding the right retail investment opportunity starts with understanding some tell-tale signals. “The US net lease retail environment is driven primarily by the general health of retailers,” says Fitzgerald. “Are there a large number of retail operators that are opening new locations or investing in existing locations in a way where they need access to capital?” When the answer to that question is yes, deal flow often follows, and Fitzgerald points to specific categories where he sees the strongest deal flow and investor interest right now. Non-discretionary Categories Draw Investor Interest Fitzgerald notes that retailers that sell non-discretionary products or services are among the most interesting for investors, but tend to carry lower cap rates. “We also think about the macro trends, such as fitness,” says Fitzgerald. “It used to be something that a small percentage of the population would pay for; now it’s become a non-discretionary spend for a lot of families because general health and fitness have become a priority.” He notes that convenience stores, car washes and automotive services are among the other segments he sees generating strong deal flow, with car washes having regained interest and automotive services drawing attention across the board. Full Loan-to-Value Appeal Drives Demand For business operators or CFOs seeking efficient forms of capital, Fitzgerald explains that the net lease structure is hard to beat. “They can redeploy that capital back into their businesses at a higher return because they’re getting more loan-to-value than a mortgage,” says Fitzgerald. “That’s why we see sale-leasebacks continuing to be one of the top choices for businesses that have an ongoing need for capital.” When evaluating a net lease retail asset, Fitzgerald explains that the analysis centers on whether a location can generate enough cash flow to cover rent easily across a commitment that can run for 20 years or more. He also notes that new stores can complicate that picture since there is no operating history to draw from, which is why assets with longer track records tend to be the easiest to understand and underwrite. Net Lease Retail Holds Up Across Good Economies and Bad Despite continued headlines about retailer store closures, Fitzgerald notes that the net lease retail market is more durable than the news cycle suggests. He explains that the net lease market has proved resilient across good and bad economies, with the most difficult periods coming not from downturns but from rapid interest rate swings in either direction. “I’m optimistic about the net lease retail market. Even in times of relative instability, we continue to see consistent deal flow, as companies leverage sale-leaseback transactions to monetize real estate and fund growth,” says Fitzgerald.
An Interview with Gino Sabatini
Gino Sabatini, our Head of Investments, was recently a guest on the Net Lease Observer podcast. In the podcast, Gino discusses: His background in the restaurant business The history of W. P. Carey His view on how the investment market has changed over the years; and His outlook for 2026 and beyond Watch now An interview with Gino Sabatini, W. P. Carey, and Sean Hostert, Net Lease Observer.