For the first time in four years, retail net absorption has gone negative, as closures among brands like Big Lots and Party City released millions of square feet back into the market. The retail market absorbed a negative net 2.7 million square feet, with much of the impact being felt in neighborhood and power centers, according to JLL’s first-quarter retail market report.
Nevertheless, newly available space is often quickly re-leased by expanding retailers, according to the report. Nearly a third of the 17,248 new deals signed during the first quarter were on the market for less than five months and more than half were re-leased within 10 months of listing.
“A recent example of this was Party City’s bankruptcy auction, where nearly one-third of the 695 leases were bought by other retailers, particularly value stores like Five Below and Dollar Tree,” said the report.
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More than 9,900 locations have closed over the past five quarters, with the highest numbers coming from discount and dollar stores, drug stores and big boxes, said JLL. Meanwhile, value retailers are expanding as they benefit from cost-conscious consumers. Food & beverage tenants, especially quick-service and fast casual, are also growing their reach.
A wide variety of tenants are backfilling vacant space. For instance, a mix of discounters, sporting goods and experiential tenants are taking over former Bed Bath & Beyond space, while fitness concepts, grocery and discounters are taking over Big Lots stores. Drug retailers have been backfilled by the likes of dollar stores, bookstores and shoe stores. And Forever 21 space has been taken by discount apparel store Primark, as well as experiential tenant Elev8 Fun, said JLL.
Investment volume in retail during the quarter grew 13% year-over-year to $9.8 billion, excluding entity-level deals. This is fueled by more transactions, as well as larger average deal sizes. However, that represents a 7% quarter-over-quarter decrease, which JLL said reflects uncertainty related to political changes and trade tensions, although interest rate cuts could boost investment activity this year.
Consumer sentiment has sunk to its lowest level since 2022, but March retail sales showed an increase of 1.4% month-over-month. This is likely due to consumers making large purchases in anticipation of looming price increases, according to JLL. The categories that saw the largest rise in sales month-over-month in March were motor vehicles and parts (5.3%), building material and garden (3.3%), sporting goods, hobby & books (2.4%) and restaurant and bars (1.8%).
The report detailed individual category performance, finding mall net absorption was negative 0.6 million square feet; power center net absorption was negative 1.6 million square feet; and neighborhood, community and strip centers logged negative 5.3 million square feet.
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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.
