Despite a surge in store closures, U.S. retail property owners are finding new reasons for cautious optimism in 2025. A soon-to-be-released report from Marcus & Millichap reveals a complex landscape where vacancies spike but the pace of backfilling offers a critical lifeline—protecting landlords from what might otherwise be a swift downturn as tenant demand weakens. Across the sector, investment appetite is shifting, shaped by risk and reward dynamics and the tightening economic environment.
Vacancy rates are drifting upward: An estimated 2,000 more stores were shuttered than opened in the first half of the year, intensifying a trend carried over from last year’s net loss of 1,350 stores.
However, this headline statistic masks a notable silver lining for the market: The mean time for vacant space to be leased has dropped well below the average of the past four years, shrinking from eleven months down to just nine. This accelerated backfilling speed is cushioning property owners against further erosion in fundamentals, especially as another wave of closures looms over the rest of 2025.
Retailers offering experiential concepts—like fitness franchises and family entertainment venues—are expanding rapidly, often signing 10-year leases for larger vacant boxes, helping stabilize occupancy and attract foot traffic in shopping centers.
The investment environment, meanwhile, is defying the broader narrative of retail retreat. Transaction volume soared in the second quarter, with the number of closings marking the busiest quarter in three years. Most of these deals involve properties priced between $1 million and $5 million, reflecting a preference for smaller shopping centers and net-leased assets that promise lower management burdens and stable occupancy.
Investors are zeroing in on fast food outlets, convenience stores and auto repair shops, where vacancy remains historically scant. These segments, along with resilient strip centers, are drawing buyers looking for dependable income in an uncertain climate.
High cap rates are beginning to reset investor expectations, with average yields hitting 6.8 percent—the highest figure since 2013, according to Marcus & Millichap. This is spurring interest from those willing to take on re-tenanting risks, targeting neighborhood centers and former drug store sites where recent leasing trends suggest backfilling is feasible.
Regional markets in the southern U.S. are standing out, each entering July with single-tenant vacancy rates below the national average and pulling in capital from buyers seeking favorable fundamentals and sustained demand.
Amid these crosscurrents, two themes dominate: the resiliency of retail’s backfilling process, even as the economic backdrop darkens and a decisive tilt in investor sentiment toward property types and regions where risk is offset by strong demand or minimal new supply. With borrowing windows narrowing and consumer behavior in flux, the retail sector’s stability depends less on overall space demand than on well-timed leasing and strategic investment.
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