The retail sector has started the year on a strong footing after sustaining positive momentum through 2024, with vacancy rates remaining near record-low levels while rents continue to rise, according to the Marcus & Millichap 2025 Retail National Investment Forecast. Consumer resilience and improving foot traffic across many retail types have fostered demand across a diverse tenant base, and the outlook for the coming year is encouraging as the retail construction pipeline remains modest and several retailers have announced expansion plans.
Some near-term headwinds are likely to impact the sector, including increasing inflation, a shift in consumer behavior, and the potential impact of tariffs. The report noted a spike in store closures will be evident this year, but these spaces will attract backfilling from companies opening stores and expanding their footprints.
Marcus & Millichap said capital should be readily available this year for retail borrowers, with CMBS representing the primary avenue for interest-only loans. Borrowers seeking non-recourse loans for grocery-anchored centers and unanchored strip centers may look to life insurance companies, said the report.
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“Net-leased assets and well-located shopping centers, especially those with high-credit anchor chains and long-term leases, should attract active investors and others with significant capital ready for deployment in 2025,” said the report. “Tight conditions across most retail center types should also elicit investment, supporting trading velocity. A cohort of investors focused on capturing value through re-tenanting may target smaller strip centers and some power centers.”
A moderate shift in demand for single-tenant space was noted last year, putting vacancy 100 basis points below its long-term average despite an increase in store closures. Single-tenant trading last year was similar to 2019. Private buyers seeking properties with long-term stable income will likely remain active in the segment and may leverage 1031 exchange capital to trade into less management-intensive properties, said Marcus & Millichap.
Assets leased last year averaged 9.3 months on the market, the shortest interval in at least a decade. Roughly a quarter were leased in three months or less, with food service tenants and fitness brands among the most active acquirers of retail space.
The average term by retailers last year was five years, representing an improvement from the prior 10-year mean of 4.4 years.
The top 10 markets on Marcus & Millichap’s 2025 National Retail Index (NRI) are Orlando, Raleigh, Tampa-St. Petersburg, Miami-Dade, Dallas-Fort Worth, Las Vegas, West Palm Beach, Charlotte, Houston and New York City. The index’s top markets generally have strong projections for employment, households and consumer spending.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
