**Q3 Retail Update: Steady Fundamentals Amid Constrained Supply**
Even as tariffs and economic uncertainty continued into the latter half of 2025, the U.S. retail sector showed signs of stabilization following a soft first half. Industry research points to steady vacancy rates and a halt in new construction, but the key questions going forward revolve around the resilience of consumer sentiment and the looming impact of trade tariffs.
**Tariffs and Resilience in Demand**
“Against a backdrop of significant and unpredictable shifts in tariff policy in 2025, demand for retail space has remained resilient thus far,” noted Cushman & Wakefield in their MarketBeat report. While some of the slowdown in activity stems from previously announced store closures, analysts caution it’s too early to discount the broader impact of shifting trade policies.
**Bankruptcies Had Minimal Impact**
Despite news of bankruptcies and store closures making headlines, the actual effect on national retail inventory was minimal. According to CBRE’s U.S. Retail Figures report, new openings and continued expansion balanced out any space brought back to the market through consolidations and shuttered stores. Colliers echoed this sentiment, asserting that these closures had “little impact on overall U.S. retail fundamentals.”
Moreover, Cushman & Wakefield reported that much of the vacant space due to store closures has been re-leased efficiently. They observed that expansion among retailers has been more brand-specific and intentional—even prior to the onset of tariff disruptions.
**Construction Continues to Lag**
Although demand for retail space remains strong, construction is another story. New development starts are at a low, primarily due to costs outpacing achievable rents, according to Lee & Associates in their North American Market Report. CBRE noted that most ongoing retail projects were initiated before the spike in financing costs, with preleasing agreements still key to getting projects underway.
Speculative development, by contrast, has been limited. Developers are increasingly prioritizing well-located, necessity-based projects over more speculative initiatives.
**Consumer Spending: A Mixed Picture**
Consumer behavior is under renewed scrutiny as the 2025 holiday season approaches. JLL’s Retail Market Dynamics report revealed that consumers are planning to reduce holiday spending by 10.2% this year. While high-income shoppers remain ready to spend, many consumers are demanding clear value and strategic pricing.
Lee & Associates observed that although spending persists, real consumption has plateaued. Consumers continue to feel the pressure of high prices and slowing income growth.
**Outlook: Sustained Fundamentals Amid Limited Supply**
Looking ahead, most analysts expect more of the same: constrained new supply and stable, focused demand. The Colliers report noted that the limited ground-up development is actually supporting rent growth and sustaining long-term fundamentals, even in the face of uneven demand across the country.
JLL backed up this assessment, underscoring that limited construction means the current shortage of space is unlikely to ease any time soon. Cushman & Wakefield also acknowledged the resilience in demand but warned that challenges remain, particularly in discretionary retail sectors.
Lee & Associates added a cautionary note, predicting that while rent growth may continue in the short term, most of the space being returned to the market is quickly being absorbed—particularly lower-quality, Class C inventory. They also highlighted that nearly 40% of retail inventory falls into this category, and less than 25% of all available space was built post-2000. As a result, retailers looking to expand will need to focus more on second-generation space in existing locations.
**Conclusion**
The third quarter of 2025 shows a retail sector that, while not without its challenges, is proving surprisingly stable. Despite economic headwinds, construction constraints, and increasing selectivity among consumers, the fundamentals of the market remain intact. Continuing limited supply may even help buoy rents and long-term growth for the foreseeable future.
