Chapter 4
Retail
U.S. Real Estate Market Outlook 2025
5 Minute Read
Limited Supply Will Hamper Retail Leasing Growth in 2025
Retail space availability will remain limited in 2025. Despite lower interest rates, the high cost of capital will make it challenging to finance new projects and expansions, especially in markets where rental rates may not justify the expense.
With little new space scheduled for delivery in 2025, the overall retail availability rate will remain at a record low and lead to higher asking rents. However, potential store closures could provide the welcome availability of more space. Closures in prime locations and open-air strip and power centers will be highly sought-after by tenants to generate more foot traffic. Viable retailers will also aggressively compete for well-located space and sign longer lease terms to guard against any potential supply disruptions.
Figure 9: Supply Pipeline to Remain Constrained
Figure 10: Retail Sales & Asking Rent Growth
Despite lower interest rates, the high cost of capital will make it challenging to finance new projects and expansions.
Consumer Shifts Will Alter Site Selection Strategies
Changing consumer preferences pose certain opportunities and challenges for retailers. Economic uncertainty and high inflation have made consumers more budget-conscious, often prioritizing essential goods that account for approximately 65% of consumer spending, according to the U.S. Bureau of Economic Analysis. This will heighten retailers’ interest in grocery-anchored centers, which are among the best-performing retail property types.
The ongoing rise of e-commerce also continues to reshape the retail landscape, particularly in sectors like apparel and electronics. The online share of total retail sales, excluding autos and gasoline, is expected to exceed 30% by 2030, up from 23% in 2024.
As consumers increasingly favor online options, some retailers are consolidating locations and shrinking their footprints by approximately 2% per year, according to the National Retail Federation. Open-air neighborhood, community & strip centers will see increased demand next year as retailers focus more on facilitating pickups and returns of online purchases. Many retailers who had located primarily in malls will focus expansion plans on these centers due to the continued growth of e-commerce.
As the retail industry continues to evolve, those markets that offer strong population and job growth, along with infrastructure improvements, will see significant retail demand in 2025. As mortgage rates ease and housing turnover accelerates, we can expect a further boost in demand for residential-related retail, including home goods, furniture and home improvement stores.
Figure 11: Retail Availability & Absorption
Markets to Watch
Phoenix
Population growth from a mix of young families and retirees has turned this city into a top-performing retail market. The steady influx of residents supports a significant pace of retail development, particularly in expanding suburban areas. Bolstered by infrastructure improvements and strategic investments, Phoenix is a hotspot for both national brands and local businesses. This wave of development reflects confidence in Phoenix’s long-term growth potential, attracting retailers who want to tap into the city’s dynamic consumer base.
Austin
Rapid population growth and a thriving economy, primarily driven by the tech sector, are fueling this city’s retail market. Austin’s vibrant culture and reputation as a creative hub continue to attract young professionals, entrepreneurs and high-income residents, each fueling strong demand for diverse retail experiences. With increased development and an affluent population, Austin offers a prime opportunity for retailers.
Dallas
A robust economy, growing population and strong job market, particularly in tech and finance, make Dallas one of the country’s top retail markets. High levels of absorption, combined with consistently low availability, have created a competitive environment among retailers eager to establish a presence in this thriving market. Strong demand from both national and boutique brands is fueling development activity.
Nashville
This city’s booming tourism and healthcare sectors contribute to sustained retail demand, particularly for experiential and high-end retail formats. Although the city’s attraction of younger residents has fueled growth in mixed-use developments, it has one of the lowest retail availability rates in the country.
Charlotte
This growing financial and technology center has become a magnet for young professionals. This demographic shift supports the demand for lifestyle centers and unique “retailtainment” experiences. The city’s affordable cost of living and warm climate have attracted new residents, leading major retailers and restaurants to seek new suburban and urban locations that can adequately serve this evolving consumer base.
Experiential Retail’s Rise
Retailers are focusing on experiential retail strategies to attract and retain customers. Rather than expanding into new locations, brands are focusing on optimizing their existing spaces to offer unique, immersive experiences that differentiate them from their competitors and appeal to a more experience-oriented consumer base. This “retailtainment” trend combines shopping with other elements like dining, entertainment and activities, creating spaces that provide more immersive brand engagement with customers.
This shift comes at a time of constrained supply of desirable, high-quality retail space. As a result, retailers are focused on maximizing the value of their current leases and spaces by adding experiential elements that drive interactive, destination-driven shopping.
By integrating technology such as augmented reality and interactive displays, as well as creating space for events, brands are increasing their appeal to consumers. These strategies enhance customer engagement, encourage longer store visits and result in more spending by shoppers, reinforcing the importance of physical stores within the modern retail ecosystem.
Contacts
James Breeze
Vice President, Global Industrial and Retail Research
Related Service
With integrated solutions, unique insight, and unmatched experience, we deliver successful outcomes for retailers, restaurateurs, investors, owners, a...
Related Insights
-
Brief | Intelligent Investment
Low Supply, Changing Consumer Preferences Lead to Longer Retail Lease Terms
November 12, 2024
Many retailers are signing longer-term leases to limit the degree of potential rent increases, accommodate shifts in consumer preferences and firmly establish themselves in locations closer to where consumers live.
-
Insights in Your Inbox
Stay up to date on relevant trends and the latest research.