Retailers experienced a strong holiday season in Q4, but the overall retail market also saw an increase in bankruptcies and store closures. Despite this, reports indicate that there is still a high demand for usable space with low absorption rates and vacancy rates below 5%. According to Colliers U.S. Retail Market Statistics, both tenants and brokers are struggling with finding quality space as one of their main challenges.
Absorption Challenges
Three out of four reports studied showed slow absorption due to the lack of available space mentioned above. Lee & Associates’ Q4 North American Market Report stated that tenants searching for high-quality spaces in affluent areas have limited options. CBRE’s U.S. Retail report agreed, noting that 25 out of 69 markets reported negative net absorption which contributed to the lowest annual demand since 2020.
Colliers analysts also noted that store closures have affected absorption rates but added that new spaces can provide opportunities for expanding businesses.
On The Construction Front
All reports agree on one thing – the shortage of new retail spaces is a major factor contributing to subdued absorption rates. Colliers analysts observed multi-decade lows in new developments while CBRE experts pointed out how developers are putting projects on hold which only worsens supply shortages.
The rising costs of materials and labor as well as stricter lending standards are some reasons why there has been a decrease in construction activity according to Lee & Associates’ analysts who add “developers continue facing challenges when trying to make deals work at current rent levels.”
Looking Ahead To 2025
Consumer confidence remains strong although concerns about tariffs remain especially within consumer-facing industries according Cushman & Wakefield’s analysis team who predict “high-performing brands will likely open more stores despite uncertainties.” However, even though more store closures may occur next year it seems like lack-of-space issues will persist due constraints on construction activity projected by Collier’s experts while Cushman & Wakefield predicts limitations on market expansion will remain in place.
Lee & Associates analysts believe that the current market environment will support further rent increases for landlords while supply-constrained conditions are expected to continue for the foreseeable future.
