Retail real estate has bifurcated into two markets with fundamentally different risk profiles. Necessity-based retail (grocery-anchored neighbourhood and community centres, drug stores, service-oriented strip plazas) has demonstrated durable occupancy through multiple disruption cycles because the anchor tenant drives frequent consumer trips that are difficult to replace with e-commerce.
Discretionary retail (enclosed regional malls, fashion-anchored power centres, department store-dependent centres) has faced structural pressure from e-commerce displacement, compounded by the accelerated closures of Sears, JCPenney, and other department store chains that had anchored Class B and C malls for decades. Investors and appraisers now underwrite these two categories under materially different assumptions: grocery-anchored product trades at cap rates 100-200 basis points tighter than comparable discretionary retail, reflecting the income durability that necessity-based anchors provide.
When an anchor tenant goes dark, ceasing operations in the space while the lease may technically remain in force, the economic consequences extend well beyond the loss of the anchor's rent. Co-tenancy clauses in in-line tenant leases typically give those tenants the right to pay reduced percentage rent, temporarily vacate, or terminate their leases entirely if the anchor is dark for longer than a contractually specified period (commonly 60-180 days).
A single dark anchor can therefore trigger a cascade of co-tenancy remedies across the centre, reducing effective gross income from multiple tenants simultaneously. Appraisers underwriting a centre with a dark anchor must model the probability-weighted NOI across the co-tenancy remedy scenario and the re-tenanting scenario, adjusting the capitalization rate upward to reflect the additional lease-up risk.
The food-and-beverage and experiential shift has reshaped the anchor mix in power centres and open-air lifestyle centres across North America. Grocery tenants, fitness operators (large-format clubs and boutique studios), quick-service restaurants, medical and dental clinics, and entertainment venues (pickleball, axe-throwing, escape rooms) now frequently anchor centres that formerly relied on apparel or department store tenants.
This shift is driven by the trip-generation and experiential qualities of these tenants (their customers cannot replicate the visit online) and by operators' willingness to pay rents that fashion retailers constrained by e-commerce pressure have been unwilling to match. Per ICSC research and CBRE Retail MarketView, food-and-beverage tenants have accounted for a growing share of new retail lease execution in every year since 2016, with fitness and medical uses absorbing significant anchor-box vacancy.
Mall repositioning, converting an underperforming enclosed mall to a mixed-use development, is the most complex highest-and-best-use question in retail real estate. The economics depend on several variables that interact: the remaining value of the going-concern retail operation versus the land value of the site for alternative uses (residential, office, hotel, industrial, or combinations thereof); the cost of phased demolition and construction without entirely disrupting operating tenancies; the legal complexity of co-tenancy and operating covenant provisions that anchor tenants may have negotiated in their original leases; and the entitlement risk of rezoning a large retail site for a different primary use.
Appraisers valuing a repositionable mall often produce both a going-concern retail value and a residual land value under the proposed mixed-use scenario, with the higher of the two setting the floor for acquisition pricing.