Sector-specific tariffs, along with the potential for higher country-specific duties that could come as early as July, are already impacting retailers' operations and business decisions, according to Marcus & Millichap’s first-half 2025 single-tenant net-lease retail national report.
Food-related retailers have experienced only mild impacts, while department and auto parts stores are harder hit. Overall, more net-lease tenants fall into the mildly to moderately exposed categories, which is good news for single-tenant property owners, according to the report.
Many retailers have pulled inventory forward in advance of tariffs, which has translated into a 41% quarterly increase in import volume over the first quarter. Retailers that have placed historically large orders include Build-A-Bear Workshop, Williams-Sonoma and Zumiez. Demand for short-term industrial space could rise as retailers require space to store excess inventory, said the report. Some retailers are planning to offset or mitigate the effect of tariffs by raising prices, including Best Buy, Target and AutoZone. Others have signaled they will drop products and source items from different nations.
The early tariff activity between the U.S. and China has led to lower manufacturing levels in the East Asian country and a reduction in shipments at West Coast ports. Retailers that rely on domestic goods as well as those from Mexico and Canada are poised to face the least exposure to shifting supply chain dynamics, said Marcus & Millichap. Specific tariffs may benefit brick and mortar stores, including Old Navy, Ulta Beauty and Nordstrom, which have captured a significant amount of redirected consumer dollars from sites like SHEIN and Temu that largely ship from China.
Against this backdrop, a construction slowdown is hitting the sector at a fortunate time, said Marcus & Millichap. For the year ended in March, developers delivered 23.8 million square feet of single-tenant space, the lowest 12-month tally on record. And as of May, the active pipeline equates to just 0.2% of existing inventory.
“A lack of available newer spaces will steer most tenants to existing well-located properties at a time when vacancy is 100 basis points below the sector’s long-term mean,” said the report.
Single-tenant net absorption was negative for just the fourth time on record during the first quarter, which could be exacerbated by retailers’ exposure to tariffs. Apparel, footwear, auto parts and home goods retailers that already are in a challenging financial situation may struggle in the near-term environment, said the report. Store closures may increase this year, led by Jack in the Box’s plans to close up to 120 locations.
Single-tenant assets may rank among the more attractive property types during a potentially volatile period, especially those occupied by high-credit retailers with a focus on necessities or dining, the report said. Declining consumer sentiment also tends to favor lower-cost and necessity-focused retailers. Plus, vacancy is already tight across the supermarket, restaurant and fast food segments.
“Both of these dynamics brighten the performance outlook for these subsectors,” said Marcus & Millichap. “Private investors should continue to account for the bulk of near-term trading after nearly 90 percent of all single-tenant transactions were in the $1 million to $5 million tranche during the first quarter.”
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.
