Even amid tariffs and economic uncertainties, the retail sector’s fundamentals stabilized following a softening during the first half of 2025. Research write-ups analyzing the numbers agreed that vacancy remained steady, while construction was constrained. However, the current and future questions revolve around consumer sentiment, and the tariff impact is still looming.
“Against a backdrop of significant and unpredictable shifts in tariff policy in 2025, demand for retail space has remained resilient thus far,” according to Cushman & Wakefield’s MarketBeat report. While softer demand this past year occurred from previously-announced retail closures, “it’s premature to dismiss the potential impact of shifting trade policy,” the Cushman & Wakefield analysts said.
What Bankruptcies?
Bankruptcies and stores being shuttered had little impact on available space as “openings and expansions offset space returned through closures and consolidations,” said CBRE’s U.S. Retail Figures write-up. Colliers analysts, in the company’s U.S. Retail Market Statistics report, agreed, pointing out that the recent closures, combined with vacancies, actually had “little impact on overall U.S. retail fundamentals.”
Furthermore, Cushman & Wakefield’s narrative pointed out that “previously announced closures and re-tenanting have occurred expediently.” At the same time, “store expansion plans have become more deliberate and brand-specific, even prior to tariffs.”
What Supply?
As space demand remains resilient, the construction pipeline is not, with construction starts at their low point. “The economics of new development remain challenging, with rising costs outpacing achievable rents,” Lee & Associates’ North American Market Report observed.
Meanwhile, CBRE analysts noted that most retail projects were launched before financing costs increased; furthermore, tenant commitments also contributed. On the other hand, “speculative starts are limited as developers prioritize well-located, necessity-based projects,” according to the analysts.
About Those Consumers
The reports had plenty to say about consumer confidence and spending.
JLL’s Retail Market Dynamics write-up explained that the company’s holiday shopping survey “revealed that consumers are pulling back budgets 10.2% this year.” While those customers with serious spending power are ready to use it, there is a “significant portion of shoppers who need to see clear value and smart pricing to take part fully in the season,” JLL experts added.
Lee & Associates analysts explained that consumer spending is still evident. However, “real consumption has been flat recently, as consumers contend with elevated prices and moderating income growth,” the analysts reported.
The Outlook: More of the Same
The reports’ forecast called for ongoing limited supply amid stable, albeit geographically focused, demand.
“With speculative projects limited, the constrained supply is helping support rent growth and sustain long-term fundamentals despite uneven demand,” the Colliers report said. The write-up noted that a limitation of ground-up spec projects is that they will help “support rent growth and sustain long-term fundamentals, despite uneven demand.”
JLL’s write-up supported this belief, noting that limited supply means “there will be no immediate easing of the space shortage.” Cushman & Wakefield analysts were also on board. Still, they cautioned that “the next several quarters will accentuate challenges in certain discretionary consumer sectors, limiting prospects for broad-based acceleration in demand.”
Lee & Associates experts predicted that rent growth could slow, as space given back through closers is being quickly leased up. They pointed out that space availability is at the lower quality spectrum; Class C space accounts for nearly 40% of the retail inventory. “Less than a quarter of available space today was built in this century,” the experts added. JLL added to this, pointing out that retailers who want to expand will have to consider second-generation space.
The post Q3 Retail: Steady Fundamentals Amid Constrained Supply appeared first on Connect CRE.