Necessity Retail and Discretionary Retail Are Not the Same Asset Class
Retail gets talked about as one category more often than any other property type, and it's the one where that habit causes the most confusion. A grocery-anchored neighborhood center and an enclosed mall built around apparel and department stores share a tenant improvement allowance line item and almost nothing else. National retail vacancy sat near 4.4% in mid-2026, one of the lowest readings across any commercial asset class, but that single number is hiding two retail markets moving in opposite directions.
Necessity Retail Runs on Habit, Not Discretion
Grocery stores, pharmacies, and discount chains draw customers regardless of what's happening with remote work policy or e-commerce penetration, because people need groceries and prescription refills whether they're working from a downtown tower or their kitchen table. That's the entire structural case for necessity retail, and the data backs it up: grocery-anchored centers are at or near full occupancy in most major markets heading into the back half of 2026, with vacancy expected to stay no higher than roughly 5.8% nationally by year-end. Almost nothing new has been built in this category since 2008, which means the existing supply is absorbing demand with essentially no competition from new construction.
Discretionary Retail Is Absorbing a Different Economy
Discretionary categories, traditional apparel, general merchandise, anything competing directly with a same-day delivery option, are facing a genuinely tougher consumer environment. Restaurant spending has risen roughly 60% since 2019 while grocery pricing rose only 20 to 30% over the same period, and that gap is pushing budget-squeezed consumers back toward staples and away from discretionary purchases. CBRE describes the current consumer as effectively "K-shaped," higher-income households continuing to spend on experiential and premium categories while lower- and middle-income consumers pull back hard on non-essential purchases. Mid-priced discretionary retail sits in the worst position in that split: not premium enough to hold affluent spending, not essential enough to hold everyone else's.
The Lease Mechanics Reflect the Difference
Retail leases carry structural features that don't show up the same way in office or industrial, and they exist specifically because retail landlords and tenants share exposure to how much foot traffic actually walks through the door. Percentage rent clauses, where a tenant pays a share of gross sales above a threshold, let a landlord participate in a strong-performing store's upside. Co-tenancy clauses, which can allow a tenant to reduce rent or exit if an anchor tenant leaves, exist because one anchor closing can drag traffic down for every smaller tenant in the same center. Necessity-anchored centers rarely trigger co-tenancy problems, because grocery anchors don't close the way department store anchors have been closing for a decade. Discretionary-anchored and mall-format retail live with that risk constantly.
Supply Discipline Is Propping Up the Whole Sector, Unevenly
New retail construction is expected to fall sharply again this year, continuing a trend driven by elevated construction costs, tighter lending, and longer entitlement timelines. That supply discipline is real and it's supporting rent growth across retail broadly. But the benefit isn't distributed evenly. Well-located neighborhood and grocery-anchored centers are absorbing that scarcity into higher valuations and rent growth. Weaker malls and older power centers, the discretionary-heavy end of the category, continue to lag because they need more capital improvement to stay competitive and face slower backfill when a tenant does leave.
Two Categories, One Word, Two Different Diligence Questions
The practical takeaway: asking whether "retail is a good investment right now" is close to a meaningless question in 2026. Asking whether a specific center is necessity-anchored or discretionary-anchored, and what its co-tenancy exposure looks like if the anchor changes, gets to something real. Space category and tenant mix are visible details on Hutfin's retail listings, which is exactly the information that separates these two retail markets before a buyer gets anywhere near the lease itself.
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