2025 Year-in-Review

Despite a rise in store closures and retailer bankruptcies, the U.S. retail real estate market remained resilient in 2025, supported by steady consumer spending and a disciplined balance between supply and demand. Retail sales rose 3.5% year-over-year, outpacing overall personal consumption growth of 2.8%, as higher-income households continued to spend while middle- and lower-income consumers maintained modest spending gains. Cooling inflation, which eased to 2.8%, helped stabilize purchasing behavior and reinforced confidence in retail fundamentals, even as growth moderated from the post-pandemic surge.

Market performance increasingly reflected demographic and economic tailwinds, with Sun Belt and Southeast markets leading national rankings. Charlotte emerged as the top-performing retail market of the year, joined by Tampa, Orlando, Norfolk, and Dallas in the top five, underscoring the continued appeal of regions benefiting from population growth, diversified employment bases, and business-friendly conditions. These markets combined strong retailer demand with measured development pipelines, allowing them to absorb closures and backfill space more efficiently than supply-heavy regions.

Shopping center foot traffic edged up in 2025, with total visits rising about 1% year over year to roughly 10.1 billion, signaling modest but steady growth off a normalized 2024 baseline. Average visits per chain also improved (+0.7%) while dwell time held essentially flat, reinforcing a pattern of efficient, mission-driven trips rather than reduced consumer engagement.

New supply remained constrained throughout the year, reinforcing landlords’ pricing power. Developers broke ground on less than 43 million square feet of retail space, the lowest level on record. Moreover, this comes on the heels of the 55 million square feet in 2025, the smallest annual addition since 2007. As a result, average U.S. retail rents rose 1.9% to a record $25.69 per square foot, led by the South, where rents have surged 28% since 2019. Investor demand reflected these tight fundamentals, with retail property sales exceeding $66.2 billion in 2025 and pricing climbing to a record $142.23 per square foot, positioning the sector for continued competition and valuation growth heading into 2026.

Trends to Watch in 2026

• The Great Space Squeeze: Higher construction and financing costs, plus rising cap rates and tariffs, continue to suppress retail development. With costs outpacing achievable rents, most new projects are limited to pre-leased pads or mixed-use ground-floor spaces. As speculative activity stalls, the supply-constrained pipeline is expected to sustain long-term performance despite uneven near-term demand.
• Value Through Transformation: Besides working together on space design, retailers and landlords are redefining partnerships to align more with what consumers want. Marketing and leasing now collaborate to deliver premium events and engaging experiences, creating destinations to spark energy and connection. As growth slows and competition intensifies, success will depend on demonstrating value, driving loyalty, and protecting margins.
• AI Gets Accountable: Retailers will continue to invest in AI to boost efficiency and future-proof operations, but expectations are shifting from innovation alone to measurable impact. Retailers will prioritize AI that clearly enhances productivity, reduces costs, and delivers tangible returns.
• The Barbell Economy: Retail growth is increasingly polarized, with value and luxury brands gaining ground while mid-tier retailers face mounting pressure. More than one-third of consumers (34.4%) plan to spend less in 2026, yet a majority (65.6%) expect to maintain or increase spending. Retailers emphasizing affordability, private labels, and clear value, or catering to resilient high-income demand, will be best positioned to sustain momentum in this market.

U.S. National Retail Forecast

• Vacancy: Vacancies are forecast to remain unchanged through 2026 because of the balance between limited new supply and steady tenant demand. Smaller formats, freestanding stores, and in-line spaces are expected to drive most leasing. At the same time, renewed interest in larger footprints signals selective expansion by retailers seeking prime locations in a still supply-constrained market.
• Lease Rates: Market rents are projected to rise by approximately 1.5% in 2026 as space availability remains steady and retail sales growth moderates. Southern and Western metros, such as Austin, Dallas, and Orlando, are expected to outperform, with gains of 3%–5%. In contrast, rents are expected to lag in legacy and supply-heavy markets in the Northeast and Midwest.
• Demand: Retail demand is projected to remain positive through 2026, supported by healthy leasing velocity and limited new supply. The median time to lease has reached a historical low of under seven months, with prime spaces filling in less than five. While some malls and shopping centers may have periods of negative absorption, steady demand for general retail is expected to keep overall net absorption positive.
• Construction: New retail construction is projected to fall by 37% in 2026 as developers remain cautious amid persistent economic uncertainty. Most current projects stem from tenant-driven demand, including expansions by large-format and warehouse retailers. While total deliveries will stay below historical norms, ongoing redevelopment of existing centers and adaptive reuse projects will help modernize aging retail stock and sustain overall market strength.

As shifting economic forces, policy changes, and AI-driven transformation continue to redefine the commercial real estate landscape, download our 2026 Outlook Report for a clear, data-backed view of where opportunities and risks are taking shape across every major sector.