SOUTHWEST U.S. RETAIL MARKET REPORT – Q1 2026

The Southwest U.S. retail market entered Q1 2026 with the second-strongest aggregate fundamentals among the five U.S. retail regions tracked in this institutional research series. Aggregate net absorption across the five primary Southwest markets, Dallas-Fort Worth, Austin, Houston, Phoenix, and Las Vegas, registered positive for the eighth consecutive quarter, driven by power center, grocery-anchored, and lifestyle absorption that institutional research consistently characterized as exceptional relative to national benchmarks. Direct vacancy across the Southwest aggregate held in the low single digits for grocery-anchored and necessity-anchored centers, with power centers and lifestyle centers registering single-digit vacancy in the strongest submarkets and Class B regional mall inventory holding above twenty percent across most metros as the secular reset toward mixed-use repositioning continued.

Dallas-Fort Worth remained the standout performer across multiple retail subsectors, with The Star in Frisco, Legacy West in Plano, NorthPark Center, Highland Park Village trophy luxury, and adjacent lifestyle and trophy luxury developments registering positive absorption and asking rent growth that institutional tracking placed among the strongest in the United States. Sun Belt corporate inflow, Texas household formation driving necessity-anchored and grocery-anchored absorption, and lifestyle and mixed-use placemaking expansion sustained the broader DFW retail platform through Q1. The Star, Legacy West, Watters Creek, The Shops at Clearfork, and adjacent lifestyle developments sustained the placemaking thesis: tenants and operators willing to pay materially above-market rents for amenity-rich, transit-accessible, mixed-use environments aligned with post-pandemic consumer behavior. The Highland Park Village and NorthPark Center trophy luxury corridor sustained meaningfully higher pricing than peer Sun Belt trophy retail submarkets through Q1 2026.

Austin registered notable strength across lifestyle and mixed-use trophy subsectors, with The Domain, Mueller, the South Congress corridor, and the 2nd Street District sustaining the region's strongest mixed-use trophy leasing momentum. Experiential retail, restaurant, contemporary fashion, and technology-adjacent consumer brands represented the dominant demand cohort. The Domain trophy lifestyle and mixed-use expansion continued absorbing leasing demand through Q1 2026, with Apple, Tesla, Oracle, and adjacent corporate inflow sustaining high-income household formation and rooftop demand for trophy lifestyle, grocery-anchored, and necessity-anchored retail. Austin's grocery-anchored thesis benefited from the H-E-B, Whole Foods, Trader Joe's, and Central Market anchor commitments sustaining new development feasibility across the metropolitan area.

Houston's Q1 2026 retail dynamics reflected the energy sector recovery and continued corporate inflow thesis that had sustained the broader Houston market through the post-pandemic cycle, expressed through retail in the River Oaks District trophy luxury corridor, the Galleria Houston mall trophy, Memorial City Mall, City Centre lifestyle, and grocery-anchored absorption across the Energy Corridor, The Woodlands, Sugar Land, and Katy trade areas. River Oaks District, the Galleria Houston, and Highland Village trophy retail registered positive absorption and asking rent growth, with luxury, contemporary, and experiential retail tenants representing the dominant institutional tenant cohort. Houston's grocery-anchored thesis benefited from the H-E-B and Kroger anchor expansion strategies sustaining new development feasibility across the metropolitan area through 2025 and into Q1.

Phoenix's retail market in Q1 2026 reflected the semiconductor corridor expansion narrative supporting the broader Phoenix economic platform, with Scottsdale Fashion Square, Kierland Commons, and adjacent trophy luxury retail sustaining positive absorption through 2025 and into Q1. Sun Belt corporate inflow, semiconductor manufacturing employment expansion in Chandler and north Phoenix, and continued Maricopa County population growth sustained necessity-anchored absorption across the broader Phoenix metropolitan area. The Scottsdale Quarter and Kierland Commons trophy lifestyle corridor sustained the placemaking thesis through Q1 2026, with Fry's Food Stores, Safeway, Whole Foods, and Sprouts grocery-anchored commitments sustaining new development feasibility across the broader Phoenix metropolitan area.

Las Vegas continued to absorb the substantial master-planned community grocery-anchored and lifestyle retail supply pipeline delivered over 2023-2025, with Summerlin, Henderson, and the Boulevard Mall trade areas sustaining positive absorption through Q1 2026. The Forum Shops at Caesars, the Grand Canal Shoppes, Las Vegas North Premium Outlets, and the Strip-adjacent tourism-driven retail sustained tourism-driven absorption through Q1. Downtown Summerlin lifestyle and grocery-anchored centers and Henderson master-planned community retail sustained continued positive absorption tied to ongoing Las Vegas population growth, corporate inflow, and household formation through 2025 and into Q1 2026.

Capital markets activity in Q1 2026 across the Southwest retail region clarified a pattern that had been forming through 2025: institutional capital was again willing to underwrite power center, grocery-anchored, lifestyle, and necessity-anchored Southwest retail at spreads materially tighter than prevailing 2024 levels, while Class B regional mall and older unanchored strip product continued to clear at distressed pricing through note sales, REO dispositions, and big-box repositioning or mall-to-mixed-use conversion workouts. Overall CMBS retail special servicing rates remained elevated against historical norms but showed early signs of stabilization as 2023-2024 vintage modifications worked through the system. Life insurance company allocations to Southwest grocery-anchored, power center, and lifestyle retail expanded modestly. Bridge lending on repositioning, lease-up, big-box repositioning, and lifestyle center stabilization cleared at spreads consistent with broader institutional research benchmarks for stabilizing retail collateral.

The Q1 2026 Southwest retail report is intended for institutional sponsors, family office principals, REIT operators, life insurance company portfolio managers, CMBS investors, and developer-sponsors evaluating financing strategy across Southwest retail assets. The capital markets framing emphasizes Bridge, CMBS, and LifeCo execution as the dominant institutional debt pillars, with Fannie Mae DUS and Freddie Mac Optigo Agency Execution available for qualifying mixed-use retail-residential executions and SBA 7(a) and 504 financing available for owner-user retail acquisitions meeting fifty-one percent owner-occupancy thresholds under the June 2025 SBA Standard Operating Procedure.

The Southwest retail region's Q1 2026 fundamentals reflected the second-strongest aggregate position among U.S. retail geographies tracked in this series. Direct vacancy across the five primary Southwest markets averaged in the high single digits to low teens range for grocery-anchored, necessity-anchored, and power center product, materially below national retail aggregates and West Coast and Northeast gateway comparables for similar product types. Lifestyle center and mixed-use trophy retail vacancy in DFW, Austin, and Houston prime submarkets registered in the single digits, while Class B regional mall and older unanchored strip vacancy held materially above twenty percent across most secondary metros as the secular reset continued. Trophy lifestyle, power center, and grocery-anchored asking rent growth registered positive across all five primary metros, while Class B regional mall and older unanchored strip continued the national reset pattern with modestly negative asking rent trajectories.

Dallas-Fort Worth

Dallas-Fort Worth's Q1 2026 retail fundamentals continued the multi-quarter lifestyle, trophy luxury, and grocery-anchored expansion that had defined the market through 2024-2025. The Star in Frisco, Legacy West in Plano, Watters Creek, The Shops at Clearfork, and adjacent lifestyle and mixed-use developments sustained the region's strongest lifestyle leasing momentum, with experiential retail, restaurant, contemporary fashion, and technology-adjacent consumer brand tenants representing the dominant demand pool. Highland Park Village and NorthPark Center anchored the DFW trophy luxury corridor, with international luxury brands including Hermès, Chanel, Louis Vuitton, Cartier, Dior, Tom Ford, Tiffany & Co., and Harry Winston sustaining flagship strategies through Q1 2026. Galleria Dallas regional mall, anchored by Macy's and Nordstrom (with Nordstrom announcing exit during Q1 2026), continued its evolution through department store anchor repositioning paired with experiential and contemporary fashion absorption including Aritzia, Netflix House, and adjacent tenant additions. DFW's grocery-anchored retail subsector registered positive absorption across the Plano, Frisco, Southlake, Westlake, Highland Park, Lakewood, and Las Colinas trade areas, with Kroger, Tom Thumb, Whole Foods, H-E-B (expanding into DFW through 2025-2026), Sprouts, and Trader Joe's commitments sustaining new development feasibility.

Suburban DFW commodity unanchored strip center inventory and Class B regional mall product continued the national reset. Several adjacent suburban Class B regional mall properties advanced through note sales, REO dispositions, or mall-to-mixed-use conversion feasibility studies during 2025 and into Q1 2026. DFW's mall-to-mixed-use conversion pipeline remained modest relative to Atlanta, though several DFW-adjacent and suburban Class B regional mall sites reached financial close in Q4 2025 and Q1 2026. Big-box repositioning activity expanded through Q1 2026, with vacant former big-box anchors being converted to medical office, fitness, entertainment, and last-mile industrial uses across multiple DFW submarkets. The H-E-B expansion into DFW continued through 2025 and into Q1 2026, with multiple new H-E-B locations advancing through entitlement and financial close stages.

Austin

Austin's Q1 2026 retail fundamentals reflected the strongest lifestyle and mixed-use trophy market dynamics among major Texas metros. The Domain, Mueller, the South Congress corridor, the 2nd Street District, and East Austin lifestyle and mixed-use developments registered positive absorption and double-digit asking rent growth on a trailing-twelve-month basis on trophy lifestyle product. The Domain trophy lifestyle and mixed-use expansion continued absorbing leasing demand through Q1 2026, with Apple, Tesla, Oracle, and adjacent semiconductor and corporate inflow employment supporting high-income household formation and rooftop demand for trophy lifestyle, grocery-anchored, and necessity-anchored retail. Mueller and the broader east Austin mixed-use platform sustained the placemaking thesis through Q1 2026.

Austin's retail demand profile continued reflecting structural drivers that distinguished the market from broader Texas retail fundamentals: technology and semiconductor sector employment expansion driving high-income household formation, continued corporate inflow from California and the Pacific Northwest, and tourism-driven hospitality-adjacent food, beverage, and experiential retail demand. Austin's H-E-B and Central Market grocery-anchored thesis sustained meaningfully tighter cap rates than peer Sun Belt grocery-anchored submarkets, with H-E-B and Central Market commitments anchoring the highest-quality grocery-anchored developments across the broader Austin metropolitan area. Necessity-anchored retail in Austin's suburban Round Rock, Cedar Park, Pflugerville, and Lakeway trade areas sustained positive absorption through Q1 2026, with H-E-B, Whole Foods, Sprouts, and Trader Joe's anchor commitments supporting new development feasibility.

Houston

Houston's Q1 2026 retail fundamentals reflected the energy sector recovery and continued corporate inflow thesis that had sustained the broader Houston market through the post-pandemic cycle. River Oaks District, the Galleria Houston, Highland Village, and Memorial City Mall trophy retail registered positive absorption and asking rent growth, with luxury, contemporary, and experiential retail tenants representing the dominant institutional tenant cohort. The River Oaks District trophy luxury corridor sustained meaningfully tighter pricing than peer Texas trophy luxury submarkets through Q1 2026, with international luxury brands sustaining flagship strategies. The Galleria Houston trophy regional mall sustained positive absorption through 2025 and into Q1 2026, with department store anchor evolution and experiential, fitness, and restaurant tenants representing the dominant absorption cohort.

Houston's grocery-anchored thesis benefited from H-E-B and Kroger expansion across the Energy Corridor, The Woodlands, Sugar Land, Katy, Cypress, Memorial, and Pearland trade areas through Q1 2026, with H-E-B continuing its multi-year Houston expansion strategy adding multiple new locations through 2025-2026. City Centre, LaCenterra at Cinco Ranch, Market Street The Woodlands, and Sugar Land Town Square mixed-use lifestyle centers sustained positive absorption through Q1 2026. Necessity-anchored centers in Houston's suburban trade areas sustained continued positive absorption through 2025 and into Q1, with population growth, household formation, and energy sector recovery supporting the broader Houston retail platform. Several suburban Houston unanchored strip center conversions to alternative uses, including medical office and necessity-anchored repositioning, advanced through 2025 and into Q1 2026.

Phoenix

Phoenix's Q1 2026 retail fundamentals reflected the semiconductor corridor expansion narrative supporting the broader Phoenix economic platform. Scottsdale Fashion Square, Kierland Commons, the Scottsdale Quarter, and Biltmore Fashion Park trophy retail registered positive absorption and asking rent growth, with luxury, contemporary, and experiential retail tenants representing the dominant tenant cohort. Scottsdale Fashion Square sustained positive absorption through 2025 and into Q1 2026, with the Tiffany, Cartier, Louis Vuitton, Hermès, and Chanel flagship strategies sustaining the trophy luxury thesis. Kierland Commons and the Scottsdale Quarter sustained the trophy lifestyle thesis through Q1 2026, with experiential retail, restaurant, and contemporary fashion tenants representing the dominant absorption cohort.

Phoenix's grocery-anchored thesis benefited from Fry's Food Stores (Kroger), Safeway, Whole Foods, and Sprouts commitments sustaining new development feasibility across the broader Phoenix metropolitan area through 2025 and into Q1 2026. Necessity-anchored centers in Chandler, Gilbert, Tempe, Mesa, Glendale, Peoria, and Surprise sustained positive absorption tied to semiconductor corridor employment expansion at TSMC Phoenix, Intel Chandler, and adjacent semiconductor manufacturing employment driving high-income household formation. Several Phoenix-area Class B regional mall and unanchored strip center properties advanced through note sales, REO dispositions, big-box repositioning, or mall-to-mixed-use conversion feasibility studies during 2025 and into Q1 2026. Arizona's adaptive reuse environment supported conversion economics on suitable assets, with several Phoenix big-box repositioning conversions to medical office, fitness, entertainment, and last-mile industrial uses advancing through 2025 and Q1 2026.

Las Vegas

Las Vegas's Q1 2026 retail fundamentals reflected the master-planned community grocery-anchored and lifestyle expansion thesis, plus continued tourism-driven absorption on the Strip and adjacent tourism corridors. Downtown Summerlin, Henderson's The District at Green Valley Ranch, and the Boulevard Mall trade areas sustained positive absorption through Q1 2026, with grocery-anchored, lifestyle, and necessity-anchored centers anchoring continued master-planned community retail absorption. Smith's Food and Drug (Kroger), Albertsons, and Whole Foods grocery-anchored commitments sustained new development feasibility across the broader Las Vegas Valley through 2025 and into Q1 2026.

The Forum Shops at Caesars, the Grand Canal Shoppes at the Venetian, the Miracle Mile Shops, Fashion Show Mall, and Las Vegas North Premium Outlets sustained tourism-driven retail absorption through Q1 2026, with international luxury brand flagship strategies sustaining the trophy luxury thesis along the Strip corridor. The Miracle Mile Shops, Forum Shops, and Grand Canal Shoppes trophy luxury corridor sustained meaningfully tighter pricing than peer Sun Belt trophy luxury submarkets through Q1 2026. Tourism-driven absorption across the Las Vegas Strip corridor sustained continued positive absorption tied to ongoing Las Vegas Strip resort development and continued international tourism recovery through 2025 and into Q1 2026.

Texas — Dallas-Fort Worth

DFW's state-level Q1 2026 retail dynamics reflected the most pronounced lifestyle and trophy luxury expansion among Southwest metros. Direct vacancy in The Star, Legacy West, Watters Creek, and The Shops at Clearfork lifestyle and mixed-use trophy product compressed into the single digits for the highest-quality trophy inventory. Highland Park Village and NorthPark Center trophy luxury vacancy held in the low single digits for the highest-quality Class A+ trophy luxury inventory, with asking rents clearing materially above peer Texas and Southwest trophy luxury submarkets. Galleria Dallas regional mall continued its multi-year evolution through department store anchor repositioning following Saks Fifth Avenue's 2013 exit and Nordstrom's announced Q2 2026 departure, paired with experiential and contemporary fashion tenant absorption. Suburban DFW commodity unanchored strip and Class B regional mall vacancy held above twenty-five percent for older 1980s-1990s product. Big-box repositioning activity expanded as vacant former Bed Bath & Beyond, Toys R Us, and other big-box anchors were converted to medical office, fitness, entertainment, and last-mile industrial uses. Texas's state-level absence of personal income tax sustained the corporate relocation thesis that had driven DFW household formation and retail demand through the post-pandemic cycle.

Texas — Austin

Austin's state-level Q1 2026 retail dynamics sustained the strongest lifestyle and trophy mixed-use position among Texas metros. The Domain trophy lifestyle vacancy compressed into the mid-single digits for the highest-quality trophy lifestyle inventory, with asking rents clearing materially above peer Texas trophy lifestyle submarkets. Mueller, the South Congress corridor, the 2nd Street District, and East Austin mixed-use developments sustained positive absorption through Q1 2026. Austin's H-E-B and Central Market grocery-anchored thesis sustained meaningfully tighter cap rates than peer Texas grocery-anchored submarkets. Texas's state-level absence of personal income tax, paired with Austin's semiconductor and technology sector employment expansion, sustained the household formation thesis driving Austin retail demand through Q1 2026.

Texas — Houston

Houston's state-level Q1 2026 retail dynamics reflected the energy sector recovery and continued corporate inflow thesis that had sustained the broader Houston market. River Oaks District, the Galleria Houston, Highland Village, and Memorial City Mall trophy direct vacancy held in the mid-single digits for the highest-quality Class A+ trophy luxury inventory. The Galleria Houston trophy regional mall sustained positive absorption through 2025 and into Q1 2026 on department store anchor evolution and experiential tenant absorption. Houston's grocery-anchored thesis benefited from H-E-B and Kroger expansion across the Energy Corridor, The Woodlands, Sugar Land, Katy, Cypress, Memorial, and Pearland trade areas. The state of Texas's absence of personal income tax, paired with continued corporate relocation flows and energy sector recovery, sustained the household formation thesis driving Houston retail demand through Q1 2026.

Texas — San Antonio and Secondary Texas

San Antonio and secondary Texas retail markets represented meaningful regional retail in Q1 2026. San Antonio's North Star Mall, The Shops at La Cantera, the Pearl District, and adjacent trophy lifestyle and grocery-anchored centers sustained positive absorption through 2025 and into Q1, with luxury, contemporary, experiential retail, and Eilan and Stone Oak grocery-anchored trade areas representing the dominant demand cohort. The Pearl District and the broader downtown San Antonio mixed-use platform sustained continued positive absorption through Q1 2026 tied to tourism-driven and experiential retail demand. El Paso, McAllen, and the broader Rio Grande Valley retail markets reflected continued positive absorption tied to cross-border retail demand and continued population growth.

Arizona — Phoenix

Phoenix's state-level Q1 2026 retail dynamics reflected the semiconductor corridor expansion narrative supporting the broader Phoenix economic platform. Scottsdale Fashion Square, Kierland Commons, the Scottsdale Quarter, and Biltmore Fashion Park trophy direct vacancy held in the mid-single digits for the highest-quality trophy luxury inventory. Scottsdale Fashion Square sustained positive absorption through 2025 and into Q1 2026 on trophy luxury anchor strategy. Phoenix's grocery-anchored thesis benefited from Fry's Food Stores, Safeway, Whole Foods, and Sprouts commitments. Arizona's state-level corporate income tax framework, paired with Maricopa County economic development incentives supporting TSMC Phoenix and Intel Chandler semiconductor manufacturing investment, sustained the corporate relocation and household formation thesis driving Phoenix retail demand through Q1 2026.

Nevada — Las Vegas

Las Vegas's state-level Q1 2026 retail dynamics reflected the master-planned community grocery-anchored and lifestyle expansion thesis paired with continued tourism-driven absorption on the Strip and adjacent tourism corridors. Downtown Summerlin, Henderson's The District at Green Valley Ranch, and the broader Las Vegas Valley grocery-anchored and necessity-anchored centers sustained positive absorption through Q1 2026 tied to ongoing Las Vegas population growth and continued master-planned community expansion. The Forum Shops at Caesars, the Grand Canal Shoppes, the Miracle Mile Shops, Fashion Show Mall, and Las Vegas North Premium Outlets sustained tourism-driven retail absorption through Q1 2026. Nevada's state-level absence of personal income tax, paired with Las Vegas tourism recovery and continued corporate inflow into the Las Vegas Valley, sustained the household formation thesis driving Las Vegas retail demand through Q1 2026.

Utah, Oklahoma, New Mexico, and Secondary Southwest

Salt Lake City, Oklahoma City, Tulsa, Albuquerque, and Tucson represented meaningful secondary Southwest retail markets in Q1 2026. Salt Lake City's City Creek Center, Fashion Place Mall, and adjacent trophy lifestyle retail sustained positive absorption on technology corridor employment expansion. Oklahoma City's Penn Square Mall and adjacent grocery-anchored and lifestyle retail sustained positive absorption tied to continued corporate inflow and household formation. Tulsa's Utica Square trophy luxury and adjacent grocery-anchored retail sustained continued positive absorption through Q1 2026. Albuquerque and Tucson reflected smaller-scale Sun Belt corporate inflow dynamics, with positive absorption on trophy and grocery-anchored product and ongoing commodity reset in older inventory.

Capital markets activity across the Southwest retail sector in Q1 2026 reflected a meaningful institutional re-engagement with power center, grocery-anchored, lifestyle, and necessity-anchored retail collateral, paired with continued price discovery on Class B regional mall and older unanchored strip product. CMBS issuance for Southwest retail collateral remained selective and tilted heavily toward grocery-anchored mixed-use, necessity-anchored centers, power centers, lifestyle centers, and trophy luxury product, with several Q1 2026 conduit pools including meaningful allocations to Sun Belt power center, grocery-anchored, and lifestyle Southwest retail. Conduit spreads on stabilized power center, grocery-anchored, lifestyle, and trophy luxury Southwest retail tightened modestly versus 2024 comparables, while spreads on Class B regional mall and older unanchored strip collateral continued to clear at materially wider levels reflecting the secular reset.

Life insurance company allocations to long-duration Southwest trophy lifestyle, grocery-anchored, and necessity-anchored retail expanded modestly versus 2024 lows. LifeCo permanent financing executed during Q1 2026 across Southwest trophy lifestyle, trophy luxury, and stabilized grocery-anchored product cleared at spreads consistent with broader institutional research benchmarks for the highest-quality stabilized retail collateral. Several Southwest Q1 2026 LifeCo executions included DFW Highland Park Village and Legacy West trophy luxury and lifestyle, Houston River Oaks District trophy luxury, Phoenix Scottsdale Fashion Square trophy luxury, and stabilized H-E-B-anchored and Kroger-anchored grocery-anchored centers across Texas and Arizona. For institutional sponsors evaluating long-duration permanent financing on highest-quality stabilized retail trophy product, the LifeCo Loan Program provides the long-duration fixed-rate institutional execution pillar.

Bridge debt activity in the Southwest retail sector expanded materially through Q1 2026, with bridge lenders re-engaging on grocery-anchored stabilization, big-box repositioning, lifestyle center stabilization, and value-add necessity-anchored repositioning at spreads tightening into the second half of Q1. Bridge execution on Southwest retail clearing lifestyle and grocery-anchored stabilization business plans cleared at spreads materially tighter than 2024 comparables, reflecting the institutional re-engagement with the lifestyle and grocery-anchored thesis. For institutional sponsors evaluating Southwest retail repositioning, big-box repositioning, lifestyle center stabilization, or grocery-anchored stabilization business plans, the Bridge Loan Program provides the institutional bridge debt execution pillar that connects acquisition through stabilization.

CMBS conduit execution on stabilized Southwest power center, grocery-anchored, lifestyle, and necessity-anchored retail registered the strongest aggregate volume since early 2022 during Q1 2026, with several conduit pools including meaningful Southwest retail allocations and spreads on trophy collateral tightening modestly through the quarter. For institutional sponsors evaluating CMBS execution on stabilized Southwest retail trophy, grocery-anchored, lifestyle, or necessity-anchored product, the CMBS Loan Program provides the conduit execution pillar for stabilized trophy, grocery-anchored, lifestyle, and necessity-anchored Southwest retail collateral.

Fannie Mae DUS and Freddie Mac Optigo Agency Execution remained available for qualifying Southwest retail-residential mixed-use executions where the residential component dominated the income profile. Several Q1 2026 DFW, Austin, Houston, and Phoenix mixed-use deliveries qualified for Agency Execution on the residential component with retail at the ground level supporting the mixed-use placemaking thesis. For institutional sponsors evaluating mixed-use retail-residential Agency Execution, Agency mixed-use pathways provide qualifying executions on suitable mixed-use product. Conditional SBA 7(a), SBA 7(a) 100% commercial real estate, and SBA 504 financing remained available for qualified owner-user retail acquisitions meeting fifty-one percent owner-occupancy thresholds under the June 2025 SBA Standard Operating Procedure, with several Q1 2026 Southwest owner-user retail acquisitions executing through SBA 7(a) and SBA 504 pathways for single-tenant net-lease, owner-user franchise, and small-format owner-user retail strip product.

Private capital and structured debt activity across Southwest retail in Q1 2026 reflected meaningful institutional re-engagement on opportunistic and complex stack situations, including mezzanine and preferred equity placements for Southwest mall-to-mixed-use conversion projects, big-box repositioning capital stacks combining bridge senior with mezzanine and preferred equity tranches, and structured debt strategies for trophy lifestyle and mixed-use ground-up developments where straightforward construction financing remained selective. Several Q1 2026 DFW, Austin, Houston, and Phoenix structured debt placements included meaningful preferred equity allocations to mall-to-mixed-use conversion sponsors and lifestyle and mixed-use trophy ground-up sponsors.

CMBS retail special servicing rates on Southwest retail collateral remained elevated against historical norms but showed early signs of stabilization during Q1 2026 as 2023-2024 vintage modifications worked through the system. Class B regional mall and older unanchored strip collateral continued to dominate Southwest retail special servicing inventory, with several Q1 2026 modifications, note sales, and REO dispositions clearing through the system. Power center, grocery-anchored, lifestyle, and trophy luxury collateral remained materially under-represented in special servicing inventory relative to portfolio composition, reflecting the bifurcated retail capital markets environment that institutional research consistently characterized through 2024-2025.

The Southwest retail sector in Q1 2026 confronted a bifurcated set of structural challenges and opportunities that institutional sponsors continued to navigate through capital markets execution and asset-level repositioning. The dominant aggregate challenge remained the continued secular reset on Class B regional mall and older unanchored strip product, with several major Southwest Class B regional mall properties advancing through note sale, REO disposition, big-box repositioning, or mall-to-mixed-use conversion feasibility processes during 2025 and into Q1 2026. The aggregate Southwest Class B regional mall inventory continued to clear through institutional research projections at a pace that maintained meaningful price discovery through 2026.

The mall-to-mixed-use conversion thesis remained modest across Southwest metros relative to Atlanta and the broader Southeast pipeline, though Phoenix and DFW advanced several Class B regional mall conversion feasibility studies through 2025 and into Q1 2026. Several Phoenix Class B regional mall properties advanced through entitlement, financial close, or initial demolition stages during Q1 2026. The Southwest mall-to-mixed-use conversion thesis required favorable acquisition basis, supportive municipal entitlement frameworks, and capital stack flexibility combining bridge senior debt with mezzanine, preferred equity, and structured equity tranches.

Big-box repositioning activity expanded across the Southwest through 2025 and into Q1 2026 as vacant former Bed Bath & Beyond, Toys R Us, Tuesday Morning, and other big-box anchors were converted to medical office, fitness, entertainment, last-mile industrial, and necessity-anchored uses. The Southwest big-box repositioning thesis benefited from the broader Sun Belt population growth and household formation narrative, with conversions to medical office, last-mile industrial, and entertainment uses meeting demand from corporate inflow trade areas. Several Q1 2026 DFW, Austin, Houston, Phoenix, and Las Vegas big-box repositioning closes included bridge senior debt paired with sponsor equity, with stabilization timelines projected through 2026 and 2027.

Department store anchor replacement activity across Southwest Class A regional malls continued through Q1 2026, with vacant former Macy's, Nordstrom, Lord & Taylor, and Sears anchor boxes being converted to experiential retail, restaurant, fitness, entertainment, and contemporary fashion uses. NorthPark Center in Dallas, Scottsdale Fashion Square in Phoenix, the Galleria Houston, and Fashion Show Mall in Las Vegas all advanced department store anchor replacement initiatives through 2025 and into Q1 2026, with experiential retail, fitness, and contemporary fashion tenants representing the dominant replacement demand cohort. The Class A regional mall sector continued to outperform Class B regional mall through the post-pandemic cycle, with anchor replacement and tenant mix evolution sustaining trophy mall fundamentals.

Trophy lifestyle and mixed-use retail across the Southwest continued to register the strongest fundamentals among retail subsectors, with DFW The Star, Legacy West, and adjacent lifestyle developments leading the trophy lifestyle thesis followed by Austin The Domain, Houston City Centre and Market Street The Woodlands, Phoenix Kierland Commons and Scottsdale Quarter, and Las Vegas Downtown Summerlin. The trophy lifestyle thesis benefited from Sun Belt corporate inflow driving high-income household formation, semiconductor corridor expansion in Phoenix and Austin driving high-income household formation, and tourism-driven experiential retail demand across Las Vegas and select Phoenix and Austin submarkets. Trophy lifestyle asking rents registered positive growth through 2025 and into Q1 2026, with several trophy lifestyle deliveries clearing at materially higher rents than 2023-2024 comparables.

Grocery-anchored and necessity-anchored retail across the Southwest sustained the strongest aggregate absorption among retail subsectors, with H-E-B, Kroger, Tom Thumb, Fry's Food Stores, Safeway, Smith's, Albertsons, Whole Foods, Sprouts, Trader Joe's, and Central Market anchor commitments sustaining new development feasibility across the region's primary trade areas. The grocery-anchored thesis benefited from Sun Belt population growth, household formation, and the post-pandemic consumer behavior toward necessity-anchored daily-needs trade areas. Grocery-anchored asking rents registered positive growth through 2025 and into Q1 2026, with several Southwest grocery-anchored deliveries clearing at materially tighter cap rates than 2024 comparables, reflecting institutional capital re-engagement with the necessity-anchored thesis. The H-E-B expansion into DFW continued through 2025 and into Q1 2026, with multiple new H-E-B locations advancing through entitlement and financial close stages.

The single-tenant net-lease (STNL) retail subsector across the Southwest in Q1 2026 sustained continued institutional bid for the highest-quality investment-grade single-tenant credit, with CVS, Walgreens, Starbucks, Chick-fil-A, Dollar General, and Dollar Tree net-lease transactions clearing at cap rates consistent with broader institutional research benchmarks for the highest-quality single-tenant credit. The STNL subsector benefited from the necessity-anchored consumer behavior thesis and continued investor appetite for long-duration triple-net institutional retail credit.

The Southwest retail sector enters Q2 2026 with the second-strongest aggregate forward outlook among U.S. retail regions tracked in this institutional research series, behind only the Southeast. Forward indicators point to continued positive absorption across grocery-anchored, necessity-anchored, power center, lifestyle, and trophy luxury subsectors through Q2 2026, with the secular reset on Class B regional mall and older unanchored strip product continuing through institutional research projections. Lifestyle, grocery-anchored, and trophy luxury capital markets execution should sustain the institutional re-engagement thesis through Q2 2026, with CMBS and LifeCo allocations expanding modestly on the strength of Q1 2026 execution.

The Sun Belt corporate inflow narrative supporting Southwest retail demand should sustain household formation, rooftop expansion, and necessity-anchored absorption through 2026, with Texas, Arizona, Nevada, and Utah continuing to register among the strongest U.S. state-level population growth and corporate relocation flows. The Federal Reserve's monetary policy trajectory through Q2 2026, paired with continued institutional research consensus on the longer-duration disinflation thesis, should support continued tightening of CMBS conduit spreads on stabilized trophy lifestyle and grocery-anchored Southwest retail through 2026.

The DFW lifestyle and trophy luxury thesis should sustain through Q2 2026, with The Star, Legacy West, Watters Creek, The Shops at Clearfork, and adjacent lifestyle developments continuing the trophy lifestyle absorption narrative. Highland Park Village and NorthPark Center trophy luxury strategies should sustain through Q2 2026, with international luxury brands continuing footprint expansion and flagship reformatting strategies. Galleria Dallas regional mall should continue its multi-year evolution through Q2 2026, with the Nordstrom departure repositioning paired with continued experiential and contemporary fashion tenant absorption. The H-E-B expansion into DFW should continue through Q2 2026, with multiple new H-E-B locations advancing through entitlement and financial close.

Austin's lifestyle and trophy mixed-use thesis should sustain through Q2 2026, with The Domain, Mueller, the South Congress corridor, the 2nd Street District, and East Austin mixed-use continuing to anchor the placemaking thesis. The Austin H-E-B and Central Market grocery-anchored thesis should sustain through Q2 2026, with continued grocery-anchored new development feasibility supporting the broader Austin retail platform. Houston's River Oaks District trophy luxury and Galleria Houston trophy regional mall thesis should sustain through Q2 2026, with the energy sector recovery and continued corporate inflow supporting the broader Houston retail platform.

Phoenix's Scottsdale Fashion Square trophy luxury and Kierland Commons trophy lifestyle thesis should sustain through Q2 2026, with the semiconductor corridor expansion at TSMC Phoenix and Intel Chandler continuing to support high-income household formation and rooftop demand for trophy luxury, trophy lifestyle, and grocery-anchored retail. Las Vegas's Downtown Summerlin lifestyle and grocery-anchored thesis should sustain through Q2 2026, with continued Las Vegas Valley master-planned community expansion supporting the broader Las Vegas retail platform. Tourism-driven absorption along the Las Vegas Strip should sustain through Q2 2026, with continued international tourism recovery supporting the Forum Shops, the Grand Canal Shoppes, the Miracle Mile Shops, and Fashion Show Mall trophy luxury thesis.

CMBS conduit execution on stabilized Southwest power center, grocery-anchored, lifestyle, and trophy luxury retail should sustain the Q1 2026 institutional re-engagement through Q2 2026, with several Q2 2026 conduit pools expected to include meaningful Southwest retail allocations. LifeCo permanent financing on highest-quality stabilized Southwest trophy luxury, lifestyle, and grocery-anchored retail should expand modestly through Q2 2026, reflecting continued life insurance company allocation expansion. Bridge debt activity on Southwest retail repositioning, big-box repositioning, lifestyle center stabilization, and grocery-anchored stabilization should sustain the Q1 2026 expansion through Q2 2026.

Cornovus Capital advises institutional retail sponsors across the Southwest on capital structure design, lender coordination, and execution for acquisitions, refinancings, recapitalizations, repositioning, big-box repositioning, mall-to-mixed-use conversion, department store anchor replacement, and ground-up trophy lifestyle and mixed-use development financing strategies. The Cornovus Capital institutional framework integrates Bridge, CMBS, LifeCo, qualifying Agency mixed-use, conditional SBA 7(a) and 504 for owner-user retail, and structured debt and private capital solutions for the most complex Southwest retail capital stack situations. The Cornovus Capital Q2 2026 institutional retail framework anticipates continued institutional re-engagement with Southwest trophy lifestyle, trophy luxury, grocery-anchored, and necessity-anchored retail, with capital markets execution sustaining the Q1 2026 momentum through Q2 2026 and into the second half of 2026.

---