The national retail vacancy rate has spiked by 10 basis points to 4.3% during the second quarter, driven by late 2024 closures beginning to hit the market, according to market statistics from Colliers. While retail availability is increasing, it remains well below its 10-year average, the report said.
New York and Atlanta tied for the top retail market in the United States, both with a vacancy rate of 4.1%. Philadelphia was second at 4.2%, Washington, D.C., was fourth at 4.4% and Phoenix came in fifth with a rate of 4.6%. Rounding out the top ten retail markets were Dallas-Fort Worth at 4.8%, Chicago at 4.9%, Houston at 5.4%, Los Angeles at 5.8% and Detroit at 5.9%.
By property type nationally, mall and shopping center vacancy rates were both up 20 basis points to 8.9% and 5.3%, respectively.
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Nearly 48 million square feet of retail space was under construction during the quarter, and six million square feet were delivered. Colliers said new supply remains limited amid high costs and financing rates, which are driving a shortage of first-generation space as national retailers look to expand, particularly in fast-growing markets.
Texas was home to a large portion of U.S. retail construction during the second quarter. Dallas-Fort Worth was the market with the most retail space under construction at 7.2 million square feet, followed by Houston at 3.9 million square feet, Austin at 3.5 million square feet, Phoenix at 2.2 million square feet and San Antonio at 1.7 million square feet.
The retail market recorded negative net absorption of 6.4 million square feet for the quarter as leasing activity declined 5.2%. Colliers noted that much of the remaining available space is lower quality, which has left tenants to search for modern space in affluent areas with limited options. Less than one-quarter of the availability was built after 2000, the report said.
Malls posted negative net absorption of 1.4 million square feet for the quarter, while shopping center net absorption was negative 6.8 million square feet.
Average asking rents dropped slightly to $25.46 per square foot, a 0.39% decrease for the quarter. Rents at malls increased 0.81% quarter-over-quarter to $34.70 per square foot, while prices at shopping centers increased 0.91% to $25.38 per square foot.
“Rent growth is expected to continue slowing in the coming quarters as recent store closures add space to the market,” said Colliers. “However, with limited supply and low overall availability, much of this space will likely be backfilled quickly.”
Average retail asking rents were highest in Honolulu at $53.87 per square foot, followed by Miami at $49.80 per square foot and New York at $45.95 per square foot. Other markets with higher-than-average asking rents include San Francisco, San Jose, Orange County, Fort Lauderdale, Los Angeles and San Diego.
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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.
