Bolstered by limited supply and a light construction pipeline, retail real estate is performing well and expected to continue to perform through 2025.
Grocery-Anchored Still Favored
Across all U.S. markets, investors are drawn to Class A assets with stable tenants. Grocery-anchored retail is still preferred, particularly given budget-conscious consumer spending trends. Centers with a solid grocery anchor such as a Whole Foods Market, Wegmans and H.E.B. are transacting with cap rates in the mid-5 range. As the most stable retail product available, these centers still garner healthy investor appetite.
Beyond grocery stores, other top-performing retail categories include personal care/wellness and electronics. Multichannel retailers, who offer a mix of in-store and online purchasing, continue to thrive and outpace even grocery stores in terms of year-over-year revenue growth.
Investors are starting to look at larger anchored centers, with plenty of activity on properties valued up to $50MM. Given the current high cost of capital, acquisitions over $50MM are more challenging without an equity partner or assumable debt.
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In the mall subsector, A++ malls are performing well, with strong leasing and good consumer spending. These high-end properties tend to benefit by adding more luxury retailers, even a bit of experiential retail. Class B and C malls continue to struggle. Dying malls across the country are giving way to mixed-use lifestyle centers, which combine retail with residential space for a live-work-play feel. Many municipalities have pushed buyers of these dying malls to follow through on their redevelopment plans. In some markets, we have seen municipalities take legal actions against owners to spur development and re-energize a downtrodden retail node.
Low Vacancy Will Offset Effect of Store Closures
National retail vacancy increased slightly to 4.2% in the first quarter of 2025 but remains at near-historic lows. Rent spread—the difference between the rent rate of a terminating lease and that of the incoming tenant—remains high. We have seen many store closure announcements from major retailers, including Macy’s, JCPenney, Joann’s, Party City, and CVS—by some estimates, over 15,000 stores will close this year. In a less space-constrained market, this many closures would be concerning. Given the shortage of quality space, however, store closures may present a welcome opportunity for owners to re-tenant for higher rents and more favorable, on-trend tenants. Vacancies are being absorbed quickly, and replacing a struggling brand with a hot retailer, such as Primark, can boost traffic and have a positive ripple effect on the rent roll.
The wave of store closures triggers questions about how best to backfill the vacancies. Replacing tenants in these spaces is contingent upon reciprocal easement agreements, so there is no one-size-fits-all solution. Given the size of these vacancies, which are often large or even anchor spaces within the center, they may be suited for the new wave of experiential retail like Dick’s House of Sports, which offers climbing walls and batting cages alongside their displays of sports clothing and equipment. It’s an exciting option, but there is limited data regarding the long-term success of these enterprises or whether the consumers they attract contribute to the foot traffic elsewhere in the center.
Trends to Watch for the Remainder of 2025
As we continue to move through 2025, which is likely to bring continued economic uncertainty, many investors will be watching to see how retail closure and backfills impact their overall portfolio. While there are retailers in the market looking for space, many are being more cautious than their predecessors when signing large, long-term leases. Many investors also believe that retail in the U.S. is under demolition and as we continue to see mall redevelopments take way and the available retail vacancies should continue to trend downwards, creating opportunities for retail owners.
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Joseph Miller
Joseph M. Miller, MAI, MRICS, is a Managing Director at Partner Valuation Advisors and serves as National Practice Lead of their retail valuation practice. He has over a decade of experience and has appraised commercial real estate in all 50 States as well as Canada, Mexico, and Puerto Rico. With significant experience leading multi-state portfolio projects, Mr. Miller has appraised some of the most prominent commercial properties in the United States, including The Old Post Office redevelopment (Chicago, IL), Hudson Yards (New York, NY), Lincoln Yards (Chicago, IL), Wynn Encore and Plaza Retail (Las Vegas, NV), and Parkmerced (San Francisco, CA). He was named a retail influencer by Globe Street and is sought out as a top valuation expert.
