CBRE’s Scott Schnuckel On Why Retail Is Back in Favor

Confidence in retail real estate was in the air at ICSC Las Vegas this week, thanks in part to lower vacancy rates and record-low construction.

CBRE’s latest data shows U.S. retail availability at 4.9 percent in the first quarter after three straight quarters of positive absorption.

Commercial Observer caught up with Scott Schnuckel, CBRE’s managing director of retail for the Americas, to discuss why retail has turned around to become one of commercial real estate’s favored sectors again, as well as where new construction is moving and where the market is heading this year.

This conversation has been edited for length and clarity.

Commercial Observer: Retail seems to be benefiting from very low supply and very little new construction. How would you describe the state of the national retail market right now?

Scott Schnuckel: You’re 100 percent right. The entire landlord community is benefiting right now from a long trend of not constructing a lot of shopping centers, the demolition of some shopping centers — some older malls — and a resurgence of growth in a lot of retail brands.

That’s on the value side of the equation: mass merchants, grocers, a lot of off-price and food and beverage. That’s all coming together right now for record-low vacancy rates, which means growing rents.

That’s true broadly across the country. Where there has been some construction, it has been in places where that equation is even more true, and that’s mostly in the South and on the West Coast.

In places like Phoenix, Texas and Florida, what kinds of projects are getting built?

A lot of ground-up. A great example is in northwest Phoenix, a town called Surprise has a huge development, the kind of power center build you would have seen 10 years ago. They had a massive first phase, and now they’re doing the second phase.

That’s what makes the Southern markets different. Because of the population growth there over the last five to 10 years, there are new suburbs that have just come out of the ground.

Retailers are doing the calculation of where they’re willing to spend the money on the cost and rent mix for brand-new construction, which is very expensive relative to taking existing space. But those markets fit that model because it’s a whole new suburb, it’s a completely incremental business, and the sales forecasting is high, so they can pay for it.

Whereas if you’re infilling a market in a Northern city, and it’s next to another store, you’re eating a little bit of sales from there. That equation is much harder.

The lack of supply seems less like a momentary trend and more like a new operating environment for the larger market. If that makes it an owner’s market, why has rent growth still been relatively modest?

Rents are a lagging indicator.

All these retailers have contracts that are locked up for 10, 15, 20 years with fixed rent increases. So the contracts don’t allow for immediate movement.

When you see 2.5 percent rent growth, that probably means contractually the average was maybe 2 percent for everybody, with landlords getting some space back and leasing it up for more than the last tenant. That’s making up the extra.

Are you seeing more investment sales and investor demand nationally?

Given the vacancy rates and how stable and low they are, there’s a huge push in the investment community.

Retail is becoming a third sector for the huge funds that buy real estate, where retail used to not be preferred. That’s for multiple reasons. They can see high stability, plus some other asset classes that have historically been stable are no longer so. Multifamily is still stable, but there’s just less product to buy than there was.

So retail is just more loved right now. There’s a lot more money going in.

What types of retail are investors most interested in?

The largest institutions always want the thing that feels more stable, so it’s grocery.

A really well-done, mixed-use project also fits that. It’s not just grocery, for sure. But the big funds are mostly still steering clear of the 1980s shopping center that needs a little bit of help, unless it has something like Apple or a grocery anchor.

At ICSC and going into the rest of 2026, what is the biggest misconception about retail right now?

Over the last five years, retailers have made really good money.

Broadly speaking, retailers have performed better than people expected. Sales were good for the last five years, and that’s part of why you’re seeing so many retailers seeking space. They want space, and they’re finding space, and that’s a contributing part of the fundamentals.

There’s also a fundamental reality that retailers are approximately as profitable and as healthy as they were in 2015.

And that was when everyone was talking about retail Armageddon.

Exactly. No one was ever going to go to a shopping center ever again.

The reality is that maybe we’re living a little bit of the high right now. Retailers operate really well when they can see constant growth and feel confident about what they’re investing in.

But there are macroeconomic things out there. None of them is devastating on its own, but all are concerning and driving lower consumer confidence than we’ve had. If a couple of those things topple, it will be interesting to see how retailers react.

Even the best ones — and the ones that are modestly expanding — will they hit the pause button immediately? Can they reinvest at the pace required, with AI evolution and everything else? Retailers are going to have to rethink their stores and rethink their customers.

It’s just something I’m monitoring, because, fundamentally, you’re in the same spot as you were a decade ago, but you’re coming off a really great run.

How are you thinking about AI’s impact on retail?

AI is going to make retail operations more productive.

It’s really not even the real estate part of it. The equation for retailers could differ a bit. Labor has been very tough for them for a while. In theory, AI could help make labor models more achievable, because with a little more productivity, maybe you can do a little more with less damage.

There is a real concern around entry-level jobs. That has already started. But one statistic I’ve been telling a lot of people is that 20 percent of the jobs we have today did not exist in 1999. That’s less than 1 percent turnover a year over 26 years. So, even if this is a little bit bigger, most likely this is not going to create some, “Oh, my god, no one is working,” scenario.

The research shows it is more likely to evolve the role than eliminate it. There are more things that suggest the way a job is done will change, not that the job will go away.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.