Both ends of the spectrum — the dominant open-air and necessity-based centers — have dollars flowing into them, while the middle is being forced to defi ne its role or risk being left behind.
They say opposites attract, and that’s certainly been true for today’s retail winners.
On one side, you have California’s high-end, open-air centers.
“Dominant open-air lifestyle centers in a affluent, supply constrained markets are seeing intense competition for space from national, experiential and restaurant tenants that want to be in the best locations and at the highest-quality properties,” says Bob Franz, vice president of West Coast acquisitions at Federal Realty Investment Trust.
On the other, you have necessity-based, grocery-anchored assets.
“That [product] is as healthy as I’ve seen it,” Franz adds. “These centers have been battle-tested through COVID, and consumers continue to shop close to home where they can see and feel their groceries rather than rely on delivery.” So, who wins? The ones who stay relevant. In today’s market, it’s less about where on the barbell an asset falls and more about whether it’s providing the convenience, experience and offerings consumers want.
CAPITAL, TOP TO BOTTOM
Greg Bedell, senior vice president and managing director at Progressive Real Estate Partners, notes today’s transaction environment is also pooling at two distinct ends. “Capital is most active in two areas: institutional-quality retail with strong demographics and tenant sales, and stabilized neighborhood centers with durable cash flow and limited near-term lease rollover,” he says.
At the high end, Bedell points to sales like Victoria Gardens in Rancho Cucamonga as proof of investor interest. The 1.2-million-square-foot lifestyle center was purchased by a venture led by Redwood West and Panattoni, in partnership with Prime Finance and Prism Places, for $530 million in March. The 98 percent leased, market-dominant center welcomes nearly 15 million annual visitors and generates more than $1,100 per square foot in retail sales, placing it among the most productive open-air shopping environments in the nation.
“This is a good example of the depth of capital pursuing irreplaceable, high-performing retail environments,” Bedell adds.
This type of transaction speaks to Franz, as Federal Realty has built its portfolio around similar high-barrier, high-income trade areas with dominant assets.
“Not because the barbell dynamic made that obvious, but because we believe those fundamentals compound over time,” he explains. “The current environment continues to validate that approach.”
That’s why Federal Realty is leaning further into dominant open-air centers, both within California and in new markets that share the same attributes where the REIT can control the merchandising mix and drive rents in the face of strong tenant demand, Franz notes.
The funny thing is, if you flip the barbell, you’ll find investors just as enthusiastic and bullish.
“Necessity-based retail re-instilled institutional investors’ conviction in retail during the pandemic — and that conviction has only expanded since,” says Scott Bohrer, vice president of development at CenterCal. “The best retailers have figured out that being in a place customers visit three or four times a week is a fundamentally different business than sitting in a regional mall they visit once a month.”
Bolstering this type of retail is the fact that the grocer and needs-based categories now take many forms.
“Grocery can be everything from the Dollar Tree in some markets to an Aldi or Grocery Outlet, a Sprouts, up to a full-sized Whole Foods, Northgate or Ralphs,” says Sandy Sigal, president and CEO of Newmark Merrill Companies.
For Sigal, the semantics matter far less than the retailer’s usefulness to customers. It’s that level of diversity that makes this type of asset a winner.
“The customer wants to make the best use of their time,” he adds.
Langdon Street Capital picked up one of Newmark Merrill’s grocery-anchored assets, the 92,000-square-foot Rialto Village in Rialto for an undisclosed sum in October 2025. The property was completed ahead of the pandemic and leased to full occupancy during that period, illustrating the power of this product type through untraditional market cycles.
Bedell believes demand for stabilized grocery-anchored and necessity-based neighborhood centers across the state will remain consistent. Private capital is particularly active, he notes, in the $2 million to $15 million segment where buyers are focused on assets with durable in-place income. These assets typically boast 90-plus percent occupancy, service-oriented tenancy and manageable lease rollover.
“They continue to attract 1031 exchange buyers and private investors seeking predictable cash flow, with pricing largely driven by income stability, location quality and remaining lease term,” Bedell notes.
Though luxury lifestyle and daily needs centers may be at opposite ends of the spectrum, it’s clear that they share a few common threads that keep investors active and tenants interested.
The biggest thread, of course, is that customers continue to patronize both…but what about assets that don’t fi t into either end?
THE MISSING MIDDLE
Naturally, not all retail is high end or daily needs. And you can’t have a barbell without the mechanism that connects the two ends.
Enter, the mid-tier center.
“Mid-tier centers are caught in the middle of the barbell right now, as tenants are prioritizing either trophy locations or necessity-driven assets,” Franz says. “It’s a tough position.”
Bedell has witnessed capital pull back from certain mid-tier assets, including those that have a combination of lease rollover within 24 to 36 months, weaker tenant credit or those that require near-term capital expenditures.
“In the middle market, we are seeing wider bid-ask spreads — sometimes 50 to 100 basis points on cap rate expectations — when the income stream is not clearly durable,” he adds.
Debt markets are reinforcing this trend. Bedell notes that lenders are typically capping leverage between 55 percent and 65 percent loan-to-value for stabilized deals but will reduce proceeds or require recourse for assets with shorter lease terms or vacancy, which directly impacts buyer pricing.
Even within the middle, two categories seem to emerge, according to Greg Finley, executive vice president and president of the West region for Brixmor Property Group.
“The first is fundamentally good real estate that needs thoughtful repositioning, including a reset of the tenant mix, design and uses to better align with how the surrounding community lives and shops today,” he says. “The second is an asset that has reached a point where its highest and best use may need to evolve beyond retail.”
Ryan Ash, vice president of development at Vestar, agrees that one of the biggest challenges facing mid-tier assets looking to remain competitive today is their age, as many now require significant TLC.
“Many shopping centers were built in the pre-GFC (Great Financial Crisis) market cycle of the early 2000s,” he explains. “These assets are nearly 20 years old and are in need of capital to reinvigorate their common areas, attract new concepts and improve the shopping experience.”
This can be a positive or a negative depending on the investor. Ash, for one, sees it as a positive.
“This timing is perfect since many of the junior-anchor leases are beginning to run out of their contractual extension options at below-market rates, which are typically 20 to 30 years of control,” he adds. “By being able to adjust in-place rents to higher market rates, landlords can justify investing in capital improvement projects to improve the shopping centers.”
Investing is precisely what many have chosen to do.
CenterCal broke ground on a comprehensive redevelopment at the Streets of Brentwood, a 360,000-square-foot center anchored by Sprouts and AMC Theatres in Brentwood, after acquiring the property in late 2024. The repositioning includes the addition of three new buildings totaling nearly 8,200 square feet; a central gathering space called the Patio that will feature an event lawn, shade structures and seating designed to encourage longer visits; and a refreshed tenant mix that includes Barnes & Noble, Dutch Bros, Slice House and Handel’s Homemade Ice Cream. The re positioning is set to open later this year.
For Bohrer, the decision to invest in this middle-market asset was a relatively easy one.
“What gave us conviction? The demographics told us a story the existing merchandising hadn’t caught up to,” he says. “Brentwood has seen enormous urban-to-suburban migration, and the community’s income profile and lifestyle expectations look far more like the broader Bay Area than the retail mix ever reflected.”
A more value-oriented transformation can be seen at Anaheim Town Square where Newmark Merrill reworked a traditional, underperforming tenant lineup into a mix that better suited its community. Replacing Ralphs, Rite Aid and Kmart on the tenant roster were Northgate Market, Target, Ross, Burlington and fitness users.
Sigal believes these types of mid-tier centers can remain competitive as long as their value — in whatever form that comes — is well demonstrated to potential customers.
“Even if it’s not luxury and not daily needs, I think there’s plenty of room to carve out a niche,” he says. “The key is creating a mix where each retailer and service provider plays o one another and you ensure that the community appreciates the value of investing time at your location.”
This can be achieved, Sigal believes, through marketing, community outreach and ensuring the tenants fit the narrative. When those items line up, there is “lots of value to be created,” he adds.
Mid-tier can also be a worthy investment at the institutional level. Federal Realty, for example, is taking a more targeted approach at Del Monte Shopping Center in Monterey. Rather than a full redevelopment, the fi rm is focused on a few strategic repositioning moves as Franz believes success often comes down to focusing on the right problem.
“It starts with an honest diagnosis,” he says. “Is it the anchor, the trade area, the physical layout or some combination? From there, a successful repositioning is about identifying the highest leverage moves first and executing them in the right order.”
With that in mind, the REIT is focused on re-merchandising underperforming sections of the Whole Foods-anchored shopping center, backfilling anchor space with a dynamic new destination operator designed to increase visits and dwell time, and making targeted common area improvements that reflect the quality of the market.
“The asset didn’t need to be rebuilt; it needed the right tenants and a more coherent vision,” Franz says, adding that early leasing results at Del Monte have been meaningfully ahead of underwriting, while the caliber of tenants now interested in the property has provided a strong signal of what may come.
Of course, not every mid-tier asset necessarily presents a clear path forward. In today’s environment, successful deals are defined by how well that upside is understood and supported.
Bedell sees financing as the most restrictive variable for these assets, especially when age is a factor. Buyers are underwriting more conservatively, with vacancy assumptions of 5 percent to 10 percent, while higher reserves for capital expenditures are becoming standard.
The key differentiators separating successful transactions from the rest are below-market in-place rents with demonstrated leasing comps to support upside, strong traffic counts and visibility at signalized intersections, a tenant mix weighted toward necessity-based or service retail and limited near-term capital expenditure requirements.
“The deals that close are the ones where that story is well-supported and communicated in a way that gives buyers confidence in both the downside protection and the forward-looking opportunity — the ones where the income story is fully underwritten and transparent,” Bedell says. “Buyers today are less willing to ‘bridge the gap’ with assumptions that are not supported by current leasing or market data.”
WHERE ALL THREE PARTS OF A BARBELL CONVERGE
Yes, it seems these three types of retail each have some positives going for them. And what’s better than one good thing? More good things. That’s why many of today’s investors are looking to combine the pricing power of dominant open-air centers, the frequency of grocery-anchored retail and the adaptability of well-positioned mid-tier assets.
In essence, the best centers are being programmed to deliver all three outcomes. Grocery-anchored open-air centers, for example, are evolving beyond simple daily needs destinations into more balanced environments that combine traffic with experience.
“We’re seeing the strongest demand in California today for necessity-based, grocery-anchored open-air centers,” Finley says. “I would argue this is not only the most resilient retail asset class in California, but one of the strongest across commercial real estate right now.”
What makes this offering so compelling for Finley is the balance of tenant mix, which includes daily needs anchors that drive consistent traffic, along with complementary uses like restaurants, fitness, healthcare and personal services that create an experience and a sense of place.
“Consumers still want to shop in person, touch and feel product, and connect with their local community,” Finley explains. “Grocery-anchored open-air centers deliver that, while also proving highly adaptable across economic cycles. The flexibility in leasing, layout and merchandising allows these centers to evolve with consumer behavior, which continues to drive strong tenant and investor interest.”
And flexibility is a major asset in today’s shopping environment.
“A universal truth is that consumer demands are ever changing,” Ash says. “Landlords need to be able to retain their ability to lease to a variety of uses over the long-term to ensure their properties prosper.”
Many are doing so by positioning their centers to capture multiple strengths along the barbell.
“Food and beverage is the clearest separator right now when determining success,” Franz says.
He believes centers that can attract a compelling and differentiated mix of restaurants, including fast casual, can distinguish themselves from a performance standpoint, thereby influencing where consumers choose to spend their time and money.
Brenda Benter, senior vice president of leasing at Red Mountain Group, agrees with this assessment.
“The lineup of food and beverage can actually make or break how a shopping center is perceived by the customer,” she adds. “F&B has always played a role in a top-tier merchant mix, but today it has taken on a much more important role.”
Franz identifies health, wellness and fitness as a close second to food and beverage, as these tenants drive consistent foot traffic and attract a complementary tenant mix. Bedell would add car washes and gas/convenience stations to that list. Taken together, these types of tenants generate frequent, repeat visits and are less vulnerable to ecommerce disruption.
When mixed correctly, they can also directly shape asset performance.
“Centers that have strong co-tenancy with these daily needs and convenience users are seeing higher occupancy, stronger leasing velocity and more competitive tenant demand,” Bedell says. “In particular, locations with strong traffic counts, easy ingress/egress, and visibility are outperforming because they align with the site requirements of fast food, co ee, gas and car wash operators.”
The challenge, of course, is ensuring these tenants are actually mixed together correctly. It’s a task that’s not as easy nowadays, Benter admits.
“Beyond the grocers, everything about how landlords must merchandise a shopping center has changed over the past 25 years,” she says.
This is partly because many of the anchor categories that once defined successful shopping centers no longer exist. Many of the big-name drugstores, electronics and music, office supplies, home décor, party supplies, crafts and even dollar stores are now out of business. The category of fast fashion, which surfaced in the ‘90s to backfill many empty boxes, has also all but disappeared, according to Benter.
“Fashion is now dominated by a handful of excellent value-oriented fashion tenants, such as TJX, Burlington, Nordstrom Rack and Ross, who continue to play a very important role in the merchandising of top-tier shopping centers,” she says. “Fortunately, many new, albeit smaller-format retailers, have surfaced to replace some of the junior-anchor boxes, including Five Below, Daiso, Miniso and TESO Life.”
This shift in tenant mix is already playing out across the state.
You can see it at the Davis Collection in Davis, for example, where Brixmor retained its Trader Joe’s anchor but re-merchandised the rest of the center with dining, services and retailers tailored to the surrounding UC Davis community.
“Today, that center functions as a true community hub,” Finley says. “That outcome reflects long-term vision, discipline and execution — and that’s what success looks like to us: creating relevance, supporting tenant performance and positioning assets to remain flexible as consumer trends continue to evolve.”
It can also be seen at Bay Street Emeryville, where CenterCal introduced Tokyo Central, a 40,000-square-foot grocery anchor with an upscale, in-house Japanese restaurant, alongside a heavily food-forward tenant mix and a newly completed art plaza. This mix highlights the current trend of a grocer being present but perhaps taking on a more supporting role within a larger merchandising strategy.
“Grocery and daily needs anchors are part of every project we touch — the question is how they fi t within a broader place-driven vision,” Bohrer says. “The grocery anchor doesn’t defi ne the project. It completes it.”
Demographic data and capital trends are further influencing CenterCal’s place-driven vision, including where it lands.
“With supply so tight across most major and mid-size markets, the opportunity for non-core locations is actually stronger than it’s been in years,” Bohrer adds. “The customer has already moved to these markets, often ahead of the retail.”
That shift, driven by neo-suburbanization, Millennial household formation and the rise of remote work, is creating new pockets of demand where retail has room to catch up. For operators that want to accommodate those households, Bohrer believes the upside is there.
“The opportunity for an operator willing to follow those customers and build something worthy of them is significant,” he continues.
What’s important to note is that this approach isn’t limited to large-scale or high-end projects. The same principals of pairing necessity-based anchors with the right mix of service, dining and experiential tenants creates relevance in most markets as long as one understands their trade area and demographics.
While every market, asset type and tier is different, today’s retail success will often include a Venn diagram of sorts that takes the best from all three components of the barbell. The reason, Finley argues, is simple.
“People want convenience, but they also value connection, flexibility and a sense of community,” he says. “Centers that combine everyday needs like groceries with dining, fitness and services stay relevant and perform well in both strong and weaker economic periods.”
That balance is what ultimately separates centers that excel from those that struggle to keep up.
“Success comes from balance and thoughtful curation, which keeps centers competitive and resilient over time,” Finley adds.
Most important of all, however, is understanding where the customer is going — and having the conviction to follow.
“We’re not chasing tenant trends; we’re following customers,” Bohrer says. “And increasingly, those customers are already in markets that the industry hasn’t fully caught up to yet. The bifurcation happening isn’t really between necessity and aspirational retail — it’s between operators who understand that and those who don’t.”