Shopping center performance entered 2026 on a stabilizing footing, with consumers remaining value-conscious while physical retail continues to demonstrate its relevance. Following a turbulent 2024 and uneven 2025, the market has shifted toward a more balanced demand-supply dynamic. Lower move-outs and steady leasing activity signal that the impact of prior store closures is fading.

Retail vacancy remained relatively stable at 4.4%, up only modestly from the prior quarter. The market remains tight overall due to limited new supply and consistent backfill demand, though a divide persists between strong demand for small spaces and softer conditions for larger anchor boxes. A major structural shift continues to shape the sector: service-based tenants now account for over half of all leased retail space, surpassing goods-based retailers for the first time. This reflects a long-term consumer shift toward experiences, wellness, and personal services, with categories like fitness leading demand.

While the pace of store closures has begun to moderate, net absorption totaled negative 4.3 million square feet during the first quarter as the market continued to work through prior closures. Despite this, leasing activity remained solid at 4.5 million square feet. Smaller-format leasing continues to dominate, driven by service-oriented tenants, while select large-format deals highlight ongoing demand for well-located anchor space. Overall leasing conditions remain healthy, supported by faster lease-up times and strong occupancy across major retail REIT portfolios, particularly within small-shop space.

Retail development remains highly constrained across the U.S. While 53.2 million square feet is under construction, new deliveries are limited and largely focused on build-to-suit and small-format projects. Elevated construction costs, financing challenges, and higher cap rates continue to restrict speculative development. At the same time, more than 150 million square feet of obsolete retail space has been removed or repurposed since 2020, further tightening supply. As a result, many markets — particularly high-growth regions — are experiencing a shortage of modern retail space.

Asking rents rose modestly in the first quarter, with growth expected to remain subdued in the near term as the market works through remaining vacancies. However, limited supply and steady demand should support relatively quick backfill and ongoing rent stability. Performance continues to vary by region, with Sun Belt markets leading growth due to strong population and income trends, while some coastal and slower-growth markets lag.

Looking ahead, vacancies are expected to rise slightly in the near term before stabilizing, with net absorption projected to rebound in later 2026. While store closures are still expected to outpace openings, the gap is narrowing. Risks remain, including potential pressure on consumer spending, tariffs, and refinancing challenges for some retailers. However, the sector’s fundamentals remain strong. Limited new supply, accelerating service-based demand, and continued retailer reliance on physical stores position the retail market to navigate near-term uncertainty and sustain long-term stability.

Download the U.S. Retail Market Statistics infographic here: 1Q26 Retail Stats