The U.S. retail landscape is undergoing a powerful recalibration. At first glance, headlines might paint a grim picture of high-profile bankruptcies, shifting consumer behavior, and negative net absorption. But with a deeper look, a more nuanced story of resilience, adaptation, and opportunity emerges.
The Reality Behind the Headlines
Yes, retail net absorption turned negative again in Q2 2025. A wave of bankruptcies and closures, including lingering aftershocks from late 2024, pushed availability up by 7 million square feet. But despite this, total retail space availability remains nearly 15% below its 10-year average.
In the wake of closures, we’re seeing unprecedented backfill demand, particularly for smaller, service-driven spaces. In fact, Q2 2025 marked the strongest quarter for new leasing activity in three years. Over 90% of newly leased spaces were under 5,000 square feet. That statistic tells us more about the future of retail than the bankruptcy headlines do.
Service Over Soft Goods: A Paradigm Shift
For the first time on record, service-based tenants, such as restaurants, fitness studios and wellness providers are leasing more space than traditional retailers. That shift is seismic.
Why? These categories are inherently e-commerce-resistant. You can’t replicate a haircut, a yoga session, or a crafted cocktail online. Consumers are leaning into experiences, and retail real estate is following suit.
Supply Is Scarce, and That’s Stabilizing the Market
Retail construction has fallen to a generational low. Rising development costs and alternative land uses (think industrial or mixed-use) have made speculative retail projects increasingly rare.
Since 2020, just 50 million square feet of retail has been built speculatively, while 157 million square feet has been demolished or repurposed. That’s a net loss of inventory. In an environment with tightening space and steady service-sector demand, this shortage is keeping rent and vacancy stable even in the face of economic uncertainty.
Rents: Slowing But Strong
Retail asking rents increased 1.9% year-over-year, marking a deceleration from the post-COVID boom but still near historic highs. High-growth metros in the South and West are outperforming, while legacy assets in slow-growth regions face mounting challenges.
Expect rent growth to moderate through early 2026 as vacant space from recent closures backfills. But well-located, smaller spaces in thriving metros are likely to continue outperforming.
Sales Activity: Quietly Heating Up
Through Q3 2025, retail investment volume reached $49.5 billion — an 8% increase over the same period in 2024. Cap rates have stabilized, and pricing is holding steady in core segments like grocery-anchored centers and high-credit net lease assets.
This rebound is being led not just by institutions but by private capital and REITs, which can be interpreted as a clear signal that market participants are adjusting to the new rate environment.
What This Means for Advisors
This isn’t a market to fear. It’s one to understand. Success in 2025 and beyond won’t just be for those who weather the storm but those who position themselves where the tide is turning.
That means:
- Focusing on service-sector tenants that thrive in smaller footprints.
- Targeting metros with population and income growth.
- Pursuing adaptive reuse opportunities in oversaturated subtypes.
- Leveraging relationships and referrals.
This market rewards precision, local expertise, and agility.
Ready to learn more? Contact an eXp Commercial advisor today.
This article is for informational purposes only and should not be construed as financial advice or a solicitation to make investment decisions. Market data sourced from the CoStar United States Retail National Report, November 3, 2025, licensed to eXp Commercial.