In this short "Top of Mind" episode of the Invest Like a Billionaire podcast, host A and guest Bob Fraser dissect a recent Marcus & Millichap report on retail real‑estate fundamentals. They highlight three converging data points: virtually no new retail development in the past 15 years, vacancy rates that are approaching zero, and rising rents that push cap rates for non‑grocery‑anchored properties into the high‑9 % range. Using long‑term retail‑sales data from the St. Louis Fed (showing a steady upward trend since the 1990s, a dip during the 2008 crisis, and a post‑COVID surge of roughly 30 %), they argue that consumer spending remains robust and that the sector is not in recession. The hosts frame this environment as a contrarian buying opportunity, especially for neighborhood‑oriented, service‑based assets (salons, pet‑grooming, liquor stores, restaurants) that are less vulnerable to e‑commerce disruption. They also discuss the supply‑side constraint: replacement costs for strip centers are roughly double current purchase prices, creating a price‑to‑cost gap that should close over time. Throughout, they contrast investor fear—driven by narratives about mall decline and e‑commerce risk—with the data‑driven reality of strong retail demand, concluding that the market is “on fire” and ripe for investment. The episode ends with a call to action for listeners to subscribe, submit article ideas, and engage with the podcast.
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Welcome back to the Invest Like a Billionaire podcast. We've got another top of mind episode for you today. If you're new to the podcast, these are shorter podcasts where we're reacting and talking about different articles we recently read, headlines we've seen in the news, and really just trying to make sense of what's going on in the economy for our listeners. There's a lot of nuance here. It's important to have the right framework when you're looking at the data. And so today, We're going to be talking about retail real estate. Talked about this a few weeks back on another Top of Mind, and there's a reason. There's a reason we're talking about this because we see a lot of opportunity and we're not seeing a lot of people talk about it, which is really interesting, but the data does not lie. And again, we've talked about this before in other podcasts, Invest Like a Billionaire, right? That's our, that's our, our name. And to do that a lot of times requires contrarian investing. You have to do things that are different than the crowd. You have to invest differently than other people in the herd mentality investing and look for the opportunities, look for the areas where there's a disconnect between price and value, right? The value and the fundamentals. So Bob, share the article you were reading the other day.
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So the article was a report by Marcus Millichap, who is a big broker In the retail space. And they made a couple points in this article and it's the points were basically, you know, why is in this hottest market called retail, why is there no deals going on? And so it's just such a good article. But they said, they made a couple points. First, they said there's been virtually no new development in retail shopping. Okay. Really in the last 15 years. And at the same time, vacancy rates continue to decline. So we're seeing vacancy rates going to almost nil. In fact, you know, in the properties, retail properties we own, we actually have zero vacancy. And at the same time, you're seeing rents going up, which of course when you have zero vacancy, rents are going up. So we're seeing all these three things happening and yet no deals are happening. And for those of you that know, that know commercial real estate, I mean, cap rates we're seeing are in the 9.5% range for non-grocery anchored retail, which is our favorite category. And that's insane. That means if you paid cash, you're earning a 9.5% return. That's what that means. And of course, leveraged up while your returns are really way higher than that. And so it's kind of nutty what's going on. Well, why is there no deals? And they're making a point that, you know, that a lot of people are taking a wait and see, and it's typical what we see. And investors are very slow to pay attention to this. They're waiting for the big recession to fall, right? But let me show you a chart here. I'll show you the recession, right? And you know, here's a chart. This is from my friend Fred. And Fred, Fred is a, is the Federal Reserve of St. Louis Federal Reserve. And they love data. Like I love data. And what this is, is retail sales, retail trade and food services. And I want to show you, this is since the '90s. So I want you to see this chart is just going up and to the right. Great financial crisis takes a little break and then goes up again. And then you got COVID and it drops off a cliff, then immediately jumps right back on top of the cliff and then doubles its, its increase. So it was already increasing at an incredible rate and then jumped 30% from COVID Wow. Retail sales are on fire. And, and you know, so the reality is You know, there's no recession in retail. And if you've gone shopping recently, you've gone, you know, been to an airport recently, they are jammed and the consumer is healthy. Now, you know, I've got people banging on me because they're saying, well, the consumer's not healthy. The lower quartile is suffering of consumers, but the other 3 quartiles are not. You're seeing wages up, you're seeing stimulus money having benefited. And you're, and people are spending like there's no tomorrow. And then the point is, so again, I think we've made this point before, but I'll make it again because it's worthy of saying, you know, people are afraid of malls. They're afraid of re retail in the sense of, you know, big box retail because of the e-commerce risk. Hey, that's not what we're talking about. And even grocery anchored, I think, you know, you pay a lot more when something's grocery anchored, it's much more expensive. But we think the grocery anchors are not worth it because they're, you know, grocery can be, has a lot of e-commerce risk on it. But the stuff that's non-grocery anchored is incredibly good priced right now. Well priced because these things, this is your nail salon, your dog groomer, your hair salon, your liquor store, your neighborhood restaurant. And these things are all booming. With services that cannot be replaced on e-commerce, right? And with COVID everybody's closer to home. So, and now people are working from home. They just are using more services that are related to their home. So we just can't get enough of this retail. And it's a classic example of a disconnect between investor fears and true opportunity. You know, this, these numbers don't lie. We're seeing retail on fire and, but everybody's afraid of the narrative. And so can anyone say buying opportunity? You know, let's buy this stuff on sale.
Yeah.
And you made amazing points here and there's really a lot of drivers to value here. Obviously retail sales is probably the biggest, but one that you talked about earlier that I think is equally as important is there hasn't been a lot of new construction of retail, right? And so you have to look at the replacement cost of some of these strip centers is so much higher than what you can buy them at right now.
It's almost double. It's almost double.
It's almost double. And so we've seen this when we were in the single-family space and still operating that space, you know, 10 years ago and we saw the same thing happen, right? There is, not as much supply and the replacement cost for the housing was so much lower than what you're buying. So inevitably prices have to over time trade up to those levels, right?
Exactly. If there's any kind of growth at all, prices have to go to replacement costs. It's just a matter of time, you know, and that's what we're seeing in retail.
Yeah.
So hope you enjoy this little episode. This is a one-hitter on the retail. Obviously an asset class we're paying a lot of attention to, very excited about, and I think there's a lot of opportunity. So tune in next time and please subscribe, leave a review. We always appreciate it. And obviously love when you guys reach out to us. You can reach out to us on thebillionairepodcast.com and there's an Ask Anything button you can click there. Send us the articles you're reading. Send us the things you're curious about. We may talk about it on an episode. And thanks so much for listening.
