— By Anthony Johnson and A.J. Johnson of Pegasus Retail —
Looking back on the market sentiment at the start of 2024, the mantra was “Survive ‘til 25.” Now, halfway through 2025, it’s clear that the record-breaking cap rate sales of 2021 and 2022 are firmly in the rearview. Speculative development is reserved for those with a generational outlook, and high interest rates are the new normal.
While that may seem bleak, for those who’ve weathered the storm, it feels like a breath of fresh air. The market has reset. Seller and buyer expectations are realigning. Landlords and tenants are exploring new deals in a more stable environment. And smart developers are dusting off models and cautiously getting back to work.
The construction hiatus of recent years has benefited owners of existing product. Tenants, fueled by Wall Street growth expectations, had to get creative. We now see many national retailers occupying second and third generation retail space that they’d historically passed in favor of shinier and newer projects. Many neighborhood centers that were 50 percent vacant at the onset of the pandemic are now close to fully leased. A surprising but welcome shift.
This outcome, partly driven by the lack of new supply, is a result of retailers gaining a sharper understanding of their post-pandemic consumer. Daily-needs shopping centers, especially those anchored by grocers, have become the new gold standard. Retailers that once focused exclusively on malls or power centers are now securing locations in grocery-anchored developments. A prime example: Bath & Body Works, once considered a “mall-only” brand, now co-tenants with Sprouts in Rio Rancho.
The grocer has proven its dominance in the retail real estate landscape, which in turn has led to a handful of new large-scale developments in our market. Albertsons recently completed its new Market Street in Rio Rancho, N.M., which is the first new grocery-anchored shopping center built in the Albuquerque MSA in nearly a decade, and it is expected to be followed by a handful of even larger scale projects around the metro.
Despite national headlines filled with bankruptcies, second-generation big box retail has quietly thrived. In fact, the wave of closures from tenants like Joann, Big Lots, and Conn’s has been a blessing in disguise for landlords. These retailers, long in decline, no longer align with the needs of the 2025 consumer.
Meanwhile, discount soft goods retailers including TJX Cos., Burlington, Ross and even emerging concepts like pickleball franchisees and health clubs, are racing to absorb any halfway decent space they can find. Leasing velocity in this category has been so strong that new development, especially when anchored by a national grocer, is finally starting to pencil again.
And of course, pad users remain a resilient subclass in retail real estate. Activity may be half of what it was in the early 2020s, but demand is still strong. As long as the American consumer values convenience, these users aren’t going anywhere.
That said, pad pricing remains the most disjointed segment in the market. Sellers’ and landlords’ expectations are still far above what users can afford, a hangover from the overpaying frenzy of recent years. Once that bid-ask spread narrows, we expect deal velocity to return quickly. Tenant interest is already there.
Looking forward to 2026 and beyond
Many developers, landlords and tenants are still nursing wounds from the past few years. Some sit on the sidelines, waiting for blood in the streets, hoping to score once-in-a-lifetime deals. But those who’ve stayed busy, reimagined, repositioned and redefined what retail can be, they haven’t just survived ‘til 25. They’re poised to thrive in 2025, 2026 and beyond.
This is a new era for retail real estate. The rules have changed and expectations have shifted, but the sector remains the backbone of the American consumer economy. So long as we value community, family, friends, entertainment, convenience and yes, a little retail therapy, retail will continue to evolve and endure.
Anthony and A.J. Johnson of Pegasus Retail are recognized leaders in the commercial real estate industry and widely regarded as top retail brokers in New Mexico and developers in the Western United States. Contact us at: ajjohnson@pegasusgroupnm.com.
This article was originally published in the June 2025 issue of Western Real Estate Business.