Retail real estate has been showing signs of resilience, but a deeper look reveals an uneven market that poses challenges for both landlords and tenants.
According to CoStar, tenant openings in the sector outpaced closures by 21 million square feet in the first half of that year, extending a streak of 10 consecutive quarters of rising demand. On the surface, that suggests a sector gaining momentum.
Yet by 2025, JLL reported that the picture had become more complicated. While openings have continued to surpass closures, the types of spaces retailers need often don’t align with what’s available. This growing mismatch has put pressure on a segment already hampered by limited new construction.
With most newly built retail properties pre-leased and tailored for specific tenants and few speculative projects in development, expanding retailers must often turn to secondhand space vacated by chains shutting down stores. Over the past 18 months, more than 10,000 closures have been announced, affecting roughly 140 million square feet. That left the first half of 2025 with negative net absorption of 14.5 million square feet, even as leasing activity only dipped a moderate 5.7% from the first to the second quarter.
The challenge lies not in the overall availability of space but in its size and suitability. Recent closures have disproportionately come from large-format tenants — such as JOANN Fabric, Rite Aid, Big Lots, Party City, Walgreens, Planet Fitness, Stop & Shop, Advance Auto Parts, Family Dollar and Lumber Liquidators. These departures have left behind big-box and junior-anchor spaces ranging from 10,000 to more than 50,000 square feet. Many of those properties are costly to reconfigure and often ill-suited to the needs of current tenants.
At the same time, demand in 2025 has skewed heavily toward much smaller footprints. JLL data shows that two-thirds of leases signed in the second quarter were for 2,500 square feet or less, while nearly 90% were under 5,000 square feet — with the strongest activity among fast-casual restaurants, quick-service chains and service-oriented businesses.
Developers, facing high costs and wary market conditions, have avoided speculative building. Retail construction dropped to 48.3 million square feet, with new starts cut in half to just 4.9 million square feet. As a result, the average time between a vacancy and a new lease stretched to over seven months.
By midyear 2025, U.S. retail had recorded 5,633 closures and 6,565 openings. But while more stores have opened than shut, the imbalance in the scale of the spaces remains stark. With most new tenants unwilling or unable to take on larger boxes, many property owners may find themselves holding vacant assets for far longer than they can afford.
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