U.S. Retail Real Estate 2026: Record-Low Vacancy Meets Rising Store Closures

Vacancy Rates Remain Historically Tight Despite Headwinds

National retail vacancy rates remain historically tight despite notable headwinds. Shopping center vacancy ended 2024 at approximately 5.3%, a 20-year low, with all-retail vacancy at 4.1%. Vacancy has held below 5% for 11 straight quarters. However, vacancy ticked up to 5.7% by year-end 2025, gaining 40 basis points year-over-year as tariff uncertainty and accelerating store closures weighed on absorption. Forecasts project further drift to 6.0% to 6.5% in early 2026 before stabilizing. By subtype in early 2025, single-tenant retail posted the tightest vacancy at 2.7%, followed by power centers at 4.7%, strip centers at 5.0%, neighborhood and community centers at 6.4%, and malls at 8.9%.

Average Asking Rents

Average asking rents across all retail types reached $34.47 per square foot as of Q4 2024, up 1.6% year-over-year. Shopping center-specific rents came in lower at approximately $24.76 per square foot, reflecting property-type mix differences. National rent growth moderated to approximately 1.9% year-over-year by mid-2025, with forecasts calling for a return to the 2010s average of roughly 1.7%. Grocery-anchored centers led rent growth at 3.1% to 3.7% year-over-year, the highest of any retail subtype.

Construction at Multi-Decade Lows Creates Structural Scarcity

New retail construction has collapsed to a fraction of historical norms. Annual deliveries since 2020 average only 81 million square feet per year, compared to roughly 300 million square feet pre-GFC and approximately 128 million square feet during the 2010s. The pipeline as a share of inventory fell to just 0.3% in 2025, half the long-term average. Only 14 million square feet of multi-tenant retail was scheduled for delivery in 2024, roughly half of projected demand. Neighborhood centers dominated the pipeline at 67% of construction (8.5 million square feet). Meanwhile, over 165 million square feet of retail space has been demolished since 2018, further tightening supply. Retail construction spending fell more than 12% in 2024, with a small additional decline expected in 2025 before growth resumes in 2026. New construction costs range from $300 per square foot for a junior anchor box to $500 per square foot for multi-tenant pad sites.

Cap Rates Stabilized After Nine Consecutive Quarters of Increases

Net lease retail cap rates reached approximately 6.96% in Q1 2025, with single-tenant net lease retail settling around 6.8% by H1 2025. Cap rates vary significantly by tenant type: convenience stores trade at 5.53%, QSR and fast-food at 5.69%, dollar and discount stores at 7.39%, and pharmacies at the highest retail cap rates of 7.48%. Grocery-anchored centers have traded around 6.1%, while power centers command approximately 7.0%. Top-quality long-leased single-tenant assets such as QSR ground leases trade at sub-5% cap rates.

E-Commerce Penetration Plateaus as Physical Stores Prove Resilient

E-commerce accounted for 16.4% of total U.S. retail sales in full-year 2025, a modest increase from 16.1% in 2024. Total e-commerce sales reached $1.234 trillion in 2025, up 5.4% from 2024's $1.19 trillion. The growth rate is decelerating: 2024's 8.1% e-commerce growth dropped to 5.4% in 2025. Physical stores remain dominant, capturing 73% of holiday purchases in 2025. Holiday retail sales grew 3.9% to 4.2% year-over-year in 2025.

Store Closures Accelerate but Backfill Pace Hits 15-Year High

Store closures surged to 7,325 in 2024 (the highest since 2020), against 5,970 openings (the most since 2012), yielding a net loss of approximately 1,355 stores. Industry research projects approximately 15,000 closures in 2025 against roughly 5,800 openings, a dramatic net loss exceeding 9,000 stores driven by Party City (695 locations), Joann (533), Big Lots, Macy's (150 planned), and Kohl's closures. Despite these headlines, the backfill pace is the fastest in approximately 15 years, with median time-on-market for retail leasing hitting a record low of roughly 7 months.

Net Absorption Collapsed in Q1 2025 Before Recovering

Full-year 2024 net absorption for all retail totaled approximately 23.1 million square feet, one of the weakest annual totals in a decade. Shopping center-specific absorption was 20.5 million square feet. The situation deteriorated sharply in Q1 2025, with shopping center absorption plunging to negative 5.9 million square feet, the weakest quarter since COVID's onset. Recovery emerged by Q4 2025 at positive 3.4 million square feet, the strongest quarter since Q4 2023, bringing the full-year 2025 shopping center total to a barely positive 852,722 square feet. The dramatic swing from 20.5 million to under 1 million square feet reflects the combined impact of accelerating closures and tariff-driven tenant caution.

Grocery-Anchored Centers Outperform on Every Metric

Grocery-anchored shopping centers continue to be the strongest-performing retail subtype. Vacancy stands at just 3.5%, down 10 basis points year-over-year and 100 basis points below the pandemic peak of 4.5%. Net deliveries of grocery-anchored space totaled less than 100,000 square feet for the second consecutive year, while average sale prices per square foot hit a record $209. Grocery-anchored properties accounted for 31% of all retail acquisitions in Q1 2025. Leading grocer portfolios reported occupancy of approximately 98%. Aldi led grocer expansion with 105 or more new stores in 2024 (exceeding 2.3 million square feet), while Trader Joe's foot traffic reached approximately 390 million visits, up 6.1% from 2023 and 24.7% from 2019. Major institutional investors launched dedicated funds exceeding $300 million for grocery-anchored retail acquisitions.

Dollar Stores, QSR, Medical, and Fitness Drive Tenant Expansion

Retail investment sales totaled $59 billion in 2024, up 8% year-over-year. Volume accelerated in 2025, with Q1 up 11% year-over-year and April surging 45% year-over-year. Single-tenant net lease retail investment reached $5.7 billion in H1 2025, up 9.6% from late 2024. Industry forecasts call for 20% growth in overall CRE investment volume for 2026. CMBS issuance exceeded $150 billion in 2025, a 140% increase versus 2024, with retail's share of CMBS rising to 25.9% from 21% in 2019.

On the tenant demand front, the strongest expansion categories in 2024 to 2025 include dollar and discount stores, with Dollar General planning 575 new stores in FY 2025 and 450 in FY 2026. Dollar and discount store foot traffic rose 4.9% year-over-year and stands 33% above 2019 levels. Over 37,000 dollar store locations now operate nationally. QSR and convenience operators continue aggressive expansion, with major franchisors targeting 1,800 new restaurants annually. Medical and medtail tenants now occupy approximately 20% of leased medical space in retail settings, with urgent care, dental, and physical therapy tenants expanding into vacant big-box and pharmacy locations. Fitness centers led all retail categories in Q4 2024 foot traffic growth at 4.1% year-over-year.

Implications for Feasibility and Valuation

Retail presents perhaps the most compelling supply-demand imbalance in commercial real estate: construction at 0.3% of inventory (a multi-decade low) against 165 million square feet demolished since 2018 has created structural scarcity that keeps vacancy historically tight at 4% to 6% even as 15,000 stores may close in 2025. Gas stations and convenience stores represent one of the most resilient retail-adjacent property types, with the foodservice pivot driving revenue diversification. Car wash developments increasingly co-locate with retail and convenience-oriented services. The fastest backfill pace in 15 years, grocery-anchored vacancy at 3.5%, and accelerating investment volume all signal that well-located retail remains a high-conviction asset class. For feasibility analysis, the critical distinction is between necessity-based, service-oriented retail (grocery, QSR, medical, fitness) that demonstrates structural resilience and discretionary goods retail (department stores, specialty apparel, pharmacies) facing ongoing contraction. The 15-year record backfill speed suggests that store closures in well-located centers are creating opportunities rather than permanent vacancy, particularly in markets where new construction is effectively zero and demolition continues to reduce total supply.

Sources

1. Cushman & Wakefield, U.S. Shopping Center MarketBeat Reports, Q2 2024 through Q4 2025
2. Colliers, U.S. Retail Market Reports, Q2-Q4 2024
3. U.S. Census Bureau, Quarterly Retail E-Commerce Sales, Q4 2025
4. Coresight Research, 2025 Store Opening and Closure Predictions, January 2025
5. JLL, Grocery Report 2025
6. B+E Net Lease, Q3 and Q4 2025 Net Lease Cap Rate Reports
7. Colliers, Single-Tenant Net Lease Retail: First Half 2025 Market Review
8. Lee & Associates, Q4 2025 North America Demand Overview
9. CBRE Investment Management, U.S. Retail's Renaissance, 2025
10. Commercial Observer, Retail Vacancy Spikes Across U.S. as Stores Face Impact From Tariffs, May 2025
11. Commercial Observer, Grocery-Anchored Hubs Continue to Draw Investment, May 2025
12. Matthews Real Estate Investment Services, Net Lease Market: Rising Cap Rates, 2025
13. Placer.ai/Matthews, Retail Foot Traffic Analysis, Q4 2024