Service-Oriented Retail Enters the Spotlight for 2026

Service-oriented retail is having a moment. While the retail sector overall has been a picture of stability for years, the essential services sector is enjoying strong fundamentals—and it is capturing the attention of institutional investors.

Matthews SVPs Pierce Mayson and Kyle Stonis are retail owner representatives, and they have seen a significant increase in investor demand for unanchored retail assets occupied by essential services. These properties are benefitting from high demand, limited space availability and a low construction pipeline, and investors are beginning to raise significant capital to take advantage of this moment. Here is a closer look inside the performance of essential retail properties.

High Demand and Low Supply Is a Good Combination
Small shop, service-oriented retail properties are firing on all cylinders. The properties are seeing high demand for a limited number of spaces, driving record-high occupancy for the asset class—often in the mid-90s, depending on the submarket. In addition, the supply pipeline remains constrained, ensuring a positive supply-demand dynamic

"Smaller shop, service-oriented necessity retail have all performed very well over the last several years," says Stonis. "The low vacancy has created competition for space, ultimately driving a stronger leasing market and increased rents and absorption."

In fact, essential retail properties have seen double-digit rent growth. The supply-demand imbalance has meant that there are thousands of tenants that can backfill these spaces, which often range from 1,000 to 3,000 square feet, according to Mayson.

This is the combination that commercial real estate investors across asset classes want in a high-priority investment. "All of those factors certainly contribute to retail being a top asset class in the CRE investment horizon right now," adds Stonis.

Service-oriented Retail Becomes Institutional Quality Asset
The positive fundamentals don't just bode well for investment in general, but it has specifically attracted institutional investors, and in the process, elevated essential retail to an institutional-quality asset. Institutional investors have seen the ability to significantly increase rents on these properties while also treating units similar to a multifamily asset, in the sense that there is a tremendous backlog of demand.

"Essential retail is now a proven asset class where you can get yield, and the institutional groups are buying it," says Stonis. "When you bring an institutional investor into an asset class, that makes the space very crowded because they have a lot more money than private capital has to deploy. For that reason, essential retail has become one of the biggest drivers of investment appetite in the retail asset class."

Institutional investment in essential retail is a relatively new phenomenon, according to Stonis, and it has been exacerbated by tumult in other asset classes. Many investors are fleeing from office, industrial and multifamily and looking for new opportunities to generate healthy risk-adjusted returns.

This is a welcome change for the retail market, which, like most CRE asset classes, has seen a dramatic drop in investment activity. Now, investors are looking for new opportunities to generate yield. Essential retail is fitting the bill.

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