While the retail market appears slightly weaker than last year, the ongoing shortage of quality available space continues to underpin fundamentals. Despite a rise in closures and softening demand, most vacated locations are being backfilled quickly—a trend most notably illustrated during Party City’s recent bankruptcy auction. Nearly a third of the chain’s 695 leases were acquired by other retailers, led by discounters Dollar Tree (148) and Five Below (44), demonstrating a healthy appetite for well-located second-generation space.

Reports from tenants and brokerage representatives echo a familiar theme: quality space is hard to come by. When vacancies arise, they are absorbed at the fastest pace in nearly 15 years. Median time to lease dropped to just 7.5 months in 2024, underscoring the continued urgency among retailers to secure well-located footprints.

Construction activity remains subdued, with just 44.8 million square feet underway in the first quarter and 7.2 million square feet delivered. High financing costs and persistently elevated construction costs continue to challenge the economics of new retail development, further restricting supply across most markets and formats.

Net absorption fell to negative 3.5 million square feet in the first quarter as demand formation slowed to its lowest annual rate in over a decade, excluding 2020. Leasing activity also declined by 11.4% in the first quarter. This trend reflects a lack of newly delivered, preleased space and the elevated level of closures in 2024. Despite recent headwinds, underlying market health remains intact thanks to supply-side constraints and ongoing tenant interest.

Still, low availability, resilient demand across various retail sectors, and minimal new development will help contain vacancy expansion. The national retail vacancy rate ticked to 4.2% in the first quarter of 2025—just 10 basis points above year-end 2024—and remains near historic lows.

Average asking rents increased to $25.56 per square foot NNN in the first quarter, a 0.27% quarterly gain. Rent growth has cooled amid increasing availability and flat retail sales, but rent spreads remain historically high—posing challenges for expanding tenants while offering strong rent upside for landlords with expiring leases. Though occupancy costs are within typical ranges, inflation and slower consumer spending have pressured rent gains over the past year.

Still, landlords with leases expiring for the first time in the last five years are likely to continue capturing elevated spreads well into 2025. The current environment—constrained supply, steady backfill activity, and rising rents—sets the tone for a competitive but resilient year ahead in retail real estate.

Download the U.S. Retail Market Statistics infographic here: 1Q25 Retail Stats