Creating Resilience
Understanding Obsolete Retail Space: Challenges and Opportunities
By: Daniel Diebel
May 14, 2025 4 Minute Read
Executive Summary
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- Obsolete (vacant and off the market) retail space has tripled since Q4 2019, affecting retailers, investors and consumers. Large format retail, particularly super regional malls, accounts for 40% of the obsolete space.
- The Midwest has the highest share of obsolete space, while the Northeast has the lowest.
- Landlords have significant leverage in lease negotiations due to limited availability.
- Retailers may find opportunities to acquire their own spaces or invest in redevelopment strategies, such as converting obsolete malls into mixed-use spaces.
Introduction
Having more than tripled since Q4 2019, obsolete retail space now hangs heavy on the minds – and occasionally the pocketbooks of retailers, investors, and consumers. We define obsolete retail space as vacant (without a tenant) and unavailable to rent (off market). Space may be vacant and off market for many reasons: retailers may not see a viable use, or landlords may struggle to make it desirable enough or financially feasible. Space that is being renovated or being held off the market for near-term strategic reasons is not counted as obsolete. As we analyze trends surrounding obsolete space nationally, regionally and by format, it becomes clear that understanding this phenomenon is essential for stakeholders navigating today’s dynamic retail environment.
Current Market Landscape
The U.S. retail market has faced increasingly limited availability in recent years. From 2010 to 2024, the U.S. retail footprint grew by just 10%, compared with an 11.6% increase in just five years between 2005 and 2009. Tepid new development has led to a record low availability rate of 4.8% in Q1 2025, a 130-basis-point (bp) drop from its pre-pandemic level. However, perceptions about the retail market are often skewed by a growing supply of obsolete space. Including obsolete space in availability measures pushes the rate up to 6.2% and shrinks the decline from the pre-pandemic level to 30 bps.
Figure 1: National Availability, Vacancy, and Obsolescence
The rise in obsolete space can be attributed to overbuilding in certain formats, shifts in consumer preferences toward convenience and experience, and lingering COVID-19 pandemic impacts. Larger format retail, which serves wide geographic areas and has faced sales cannibalization, has been particularly hard hit, accounting for 80% of the obsolete space while comprising only 46% of the total retail footprint. Freestanding retail represents 46% of all retail space but only accounts for 16% of obsolete space. No large format retail has suffered as much as super regional malls, accounting for 40% of obsolete space (half of all large format obsolescence) and representing just 5% of retail square footage (about a tenth of large format square footage).
Figure 2: Share of Obsolete Space by Format
Regional Trends
Regionally, we see similar obsolescence trends. Of course, the amount of obsolete space is highly correlated (91%) with the total space in the market. The Midwest, the third largest region in terms of retail square footage, slightly bucks the trend accounting for 20% of retail square footage but 25% of the obsolete space; 1.8% of all Midwest retail stock qualifies as obsolete – the largest share of any of the four regions. Interestingly, 55% of its super regional mall square footage is sitting obsolete – also the highest share of any region.
Conversely, the Northeastern region accounts for just 16% of retail square footage and 11% of obsolete space, translating to the lowest regional obsolescence rate of 1%. The Northeast benefits from its dense population base - buoying land values and keeping consumers closer to larger format retail and retailing zones. Further, the Northeast moves against the grain with freestanding buildings accounting for 25% of its obsolete space and sporting the lowest rate of obsolescence at a national level. Consumers in the Northeast prefer to do most of their shopping in one area, avoiding traffic congestion and burdened infrastructure. Super regional malls hold the highest share of obsolescence in every region – a reminder to retailers and investors to consider regional consumer preferences and balance of existing formats.
Figure 3: Regional Obsolescence Rate, Share of Obsolete Space, and Share of Total Retail Square Footage
| Region | Regional Obsolescence* Rate (%) |
Share Of Obsolete Space (%) |
Share of Total Retail SF (%) |
|||
| Midwest | 1.8 | 25 | 20 | |||
| Northeast | 1.0 | 11 | 16 | |||
| South | 1.5 | 37 | 38 | |||
| West | 1.3 | 27 | 26 | |||
*Obsolescence Rate = Obsolete Space/Total Retail SF (inclusive of obsolete SF).
Regionally, we see similar obsolescence trends. Of course, the amount of obsolete space is highly correlated (91%) with the total space in the market. The Midwest, the third largest region in terms of retail square footage, slightly bucks the trend accounting for 20% of retail square footage but 25% of the obsolete space; 1.8% of all Midwest retail stock qualifies as obsolete – the largest share of any of the four regions. Interestingly, 55% of its super regional mall square footage is sitting obsolete – also the highest share of any region.
Conversely, the Northeastern region accounts for just 16% of retail square footage and 11% of obsolete space, translating to the lowest regional obsolescence rate of 1%. The Northeast benefits from its dense population base - buoying land values and keeping consumers closer to larger format retail and retailing zones. Further, the Northeast moves against the grain with freestanding buildings accounting for 25% of its obsolete space and sporting the lowest rate of obsolescence at a national level. Consumers in the Northeast prefer to do most of their shopping in one area, avoiding traffic congestion and burdened infrastructure. Super regional malls hold the highest share of obsolescence in every region – a reminder to retailers and investors to consider regional consumer preferences and balance of existing formats.
Figure 3: Regional Obsolescence Rate, Share of Obsolete Space, and Share of Total Retail Square Footage
| Region | Regional Obsolescence* Rate (%) |
Share Of Obsolete Space (%) |
Share of Total Retail SF (%) |
|||
| Midwest | 1.8 | 25 | 20 | |||
| Northeast | 1.0 | 11 | 16 | |||
| South | 1.5 | 37 | 38 | |||
| West | 1.3 | 27 | 26 | |||
*Obsolescence Rate = Obsolete Space/Total Retail SF (inclusive of obsolete SF).
Figure 3a: Regional Obsolescence by Format - Midwest Region
Figure 3b: Regional Obsolescence by Format - West Region
Figure 3c: Regional Obsolescence by Format - South Region
Figure 3d: Regional Obsolescence by Format - Northeast Region
Implications for Landlords, Investors and Retailers
Overall, the paucity of available retail space has given landlords significant leverage in lease negotiations. Retail rents rose 2.5% annually (on average) over the past five years, outpacing the average increase of 2% annually between 2015 and 2019. Even if higher tariffs shake consumer and retailer confidence, rents are likely to march higher in the face of limited availability. This is good news for investors but compounds retailer frustrations in finding viable, affordable space.
Retailers may find opportunistic plays to acquire well-located obsolete spaces. In theory this could erode landlord bargaining power, though likely only on the margins given the challenges inherent in obsolete space. Larger formats could be ripe for conversion to another use. We expect to see obsolete spaces where land is most valuable (and expected to grow in value) to be the focus of most repurposing and revitalization. Similarly, retailers and consumers may perceive renewed value in underutilized retail assets in communities undergoing a revitalization.
Conclusion
Investors facing high levels of obsolescence may consider redevelopment strategies, such as converting obsolete malls into mixed-use spaces that include residential, office or experiential retail. Focusing on areas with strong and growing land values will lead to opportunities in more obsolescence-resistant areas. Investors may also need to enhance existing properties through renovations and improvements to attract tenants. While such redevelopment may attract new tenants, they will likely erode some landlord bargaining power as revitalized obsolete properties expand the leasable inventory.
Ultimately, revitalizing or repurposing obsolete space stands to benefit consumers by providing additional shopping options, enhancing the shopping experiences and improving their perceptions of the retail market.
In navigating the complexities of the retail market, it is clear that obsolete space presents both challenges and opportunities. By embracing innovative strategies and understanding regional dynamics, stakeholders can position themselves for success in an evolving retail landscape.
Contacts
Dennis Schoenmaker, Ph.D.
Executive Director & Principal Economist, CBRE Econometric Advisors
James Breeze
Vice President, Global Industrial and Retail Research
