Retail

• Vacancies due to rising chain store closures and bankruptcies have thus far been offset by an influx of new user tenant types in the market and record low levels of development.

• The impact of tariffs on the economy, consumers, and retailers remains a major concern heading into 2026, and slower growth and rising vacancy rates are anticipated.

• The mood is less one of pessimism than one of uncertainty fatigue, at worst, and pandemic-earned confidence in retail resilience at best.

In last year’s Emerging Trends report, we highlighted how retail’s post-pandemic rebound was increasingly challenged by a rising wave of bankruptcies and store closures. Though retail sales remained largely in positive territory, the long-term impacts of the 2022–2023 inflationary wave, the Federal Reserve’s interest rate hikes, and rising levels of consumer debt were starting to take their toll. The Census Bureau’s monthly retail sales data reflected average annual gains of 3.6 percent across 2023, but this number had dropped to just 0.7 percent across the entirety of 2024. 

Some categories continued to outperform, especially discount and food-related retail, while others including furniture, electronics, and appliances struggled. Bankruptcies and closures reflected these divides, as well as the continued structural issues facing a drugstore sector where all three of the nation’s largest chains were in sharp consolidation mode, with one of them entering bankruptcy only to close the last of it’s stores in October 2025. According to chain-store tracking firm Coresight Research, traditional merchants closed more stores than they opened in 2024 for the first time since 2020.

Yet despite these headwinds, retail real estate recorded occupancy gains in 2024. According to the CoStar Group, the U.S. market recorded positive net absorption of 21.2 million square feet in 2024. Though historically tepid—the market has averaged 71.7 million square feet of occupancy gains per year since 2013—the fact that retail managed to record occupancy growth at all comes down to two basic factors: a lack of new development and the continued rise of non-traditional tenants taking space in shopping centers. As one institutional landlord told us, “Some of our legacy merchants are struggling in certain categories, but we see brisk leasing from restaurants, service-oriented concepts, experiential, and even some categories that weren’t major players in retail just a few years ago.”

Despite the modest occupancy gains of 2024, retail vacancies still rose. CoStar reported that overall retail vacancy climbed from 4.0 to 4.1 percent—with more pronounced increases in certain shopping center types—as developers added 28.7 million square feet of new space, outpacing the year’s 21.2 million square feet in occupancy gains. “Last year’s numbers were tepid all around,” the research director of a major brokerage told us. “The lack of new development out there has been a major factor in the market’s ability to absorb this level of closures. My big concern heading into 2025 and beyond has been whether this dynamic could hold. I suspect we are going to see vacancy levels climbing much more visibly in 2026.”

That question was increasingly put to the test in 2025. In discussions with market players for this year’s report, uncertainty was the universal theme. Yet, pessimism was not. As one of our interview subjects told us, “The vibe I get in the market doesn’t feel like cautious optimism. Is hopeful pessimism a thing? Or am I just describing uncertainty fatigue?”  

Another told us, “It just seems like the last few years we have had a greater level of economic uncertainty baked into the cake. In 2023 and 2024, that question of ‘recession or not,’ was about inflation and interest rates and could the Fed engineer a soft landing. Now that’s the same thing but it’s about the tariffs. After a while you just start to tune it out. I mean, other than deals taking a little longer to get done, we’ve been holding our own and doing ok.” 

As the CEO of a REIT told us, “We were hopeful that coming into 2025, some of the things the new administration was promising—like corporate tax cuts and deregulation—would juice the economy and be a boon to retail. We were less concerned about the president’s rhetoric over tariffs. We figured we would be looking at a repeat of the tariff policies of his first term. That didn’t happen and we have had to deal with a huge amount of uncertainty injected into the economy. Our tenants seem to be weathering those challenges so far, but my biggest concern is what’s ahead. I don’t think we have felt the full impact of these policies yet.”

Retail bankruptcies and closures only escalated in 2025. Coresight predicts that store closures for the year will top 15,000, double the number recorded in 2024.

The Brown Book, which tracks growth plans for both traditional and nontraditional retailers, reports that most chains entering 2025 in expansion mode have since pulled back. “A lot of retailers have scaled back growth plans since the start of the year—particularly traditional merchants.” They report that the beauty, discount, grocery (particularly small-format, discount, ethnic, or organic), and off-price apparel categories remain in robust growth mode. Fitness and restaurants are also expanding overall, though some concepts within these categories are contracting. Meanwhile, newer tenant types including aesthetics/MediSpa concepts, cannabis dispensaries, car washes, medical, pet-related, and veterinary concepts all remain highly active, though not at 2024 levels. 

Through the third quarter of 2025, the CoStar Group was reporting that national retail vacancy had jumped to 4.3 percent with 10.6 million square feet of negative net absorption through the first nine months of the year. Deliveries had fallen to 19.6 million square feet, with 2025 on pace to be the third weakest year for new development this century.  

Still, they also report that rent growth remained positive through Q3 2025 to the tune of 1.8 percent, although most of the brokers we spoke to anecdotally report stronger gains. “If you have quality real estate and it is either small shop space of 5,000 square feet or less or if it is junior box space in the 20,000- to 30,000-square-foot range, there’s still a shortage of opportunities for tenants, even if that tenant pool has been slowly declining for the last couple of years,” we were told by one national tenant representation specialist. “I am still seeing aggressive asking rents for this kind of space.”

A site selection specialist for a national chain shared, “Where we are seeing the greatest willingness to negotiate or offer better inducements is in challenged space, like former drug stores, where we have done a few deals though their sizes are larger than our typical store footprints, or in tertiary markets. Not a ton of opportunities right now for opportunistic tenants overall—but I suspect the opportunities will grow in 2026.”

Our subject interviews in Q3 2025 shared a common concern that the final months of the year will be an inflection point for retail heading into 2026. As one researcher shared, “While most analysts agree we have only started to feel the impacts of tariffs on inflation, no one knows what the full impact will be. But the timing of price increases and possibility of inventory shortages could present some of our weaker chains with a make-or-break scenario.” Meanwhile, another respondent told us, “I am just as concerned as to what the state of the consumer will be post-holiday. Even if we have a solid season, we might be looking at a tapped-out consumer to start 2026.”

One institutional landlord noted, “Looking ahead, I expect an intensification of the trends we have seen play out the last few years. Whenever inflation is elevated, the winners have been value-oriented retail. At the other end of the economic scale, luxury brands usually hold their own so I am sure that sector will do fine. But once again, it is probably going to be a lot of unwelcome news ahead for those brands in the middle that are undifferentiated to the consumer in terms of price or prestige.” 

Most of our interview respondents expressed major concerns about the economy heading into 2026, but none were especially downbeat. As one dealmaker told us, “If you were in this industry during the pandemic, you learned that our sector is way more resilient than any of us thought it was.” Another of our interviewees put it another way, “If the economy goes off the rails in 2026, it will likely be because of a voluntary policy decision that could be reversed in an instant. And last I checked, 2026 is an election year, so keep that in mind.”