Investor sentiment around the retail sector remains strong heading into 2026, despite several headwinds over the past year. Demand for retail space tapered in 2025, and absorption fell modestly into negative territory. Nevertheless, retail vacancy remained range-bound near 5%, supporting rent growth of 1%, according to John Chang, chief intelligence & analytics officer at Marcus & Millichap.
The slowdown in momentum largely reflects broad economic uncertainty, including elevated tariffs that prompted retailers to adopt more cautious expansion plans. Despite these headwinds, several metropolitan areas—including Charlotte, Austin, Boston, Indianapolis, Miami, Minneapolis-St. Paul and Northern New Jersey–are projected to close out 2025 with vacancy rates below 4%, he said.
Shopping malls have contributed to slightly higher overall retail vacancy, with rates exceeding 9%. Historically, unanchored centers have tended to experience higher vacancy than anchored properties, but since 2020, vacancy rates across both types have converged in the 4.5% to 4.7% range. In the trailing 12 months through Q3 2025, only about 10 million square feet of multi-tenant retail space was completed—the lowest level since 2012.
“While retailers have been more cautious in taking down additional space, the limited pace of construction has helped restrain vacancy rates, and that trend is likely to continue into 2026,” Chang noted.
Retail construction is expected to total a record-low 30 million square feet next year, with more than 70% likely to be single-tenant space, continuing a trend from the past eight years. Even modest demand next year should keep vacancy rates low, he said.
Concerns about elevated consumer debt have emerged, with auto debt reaching $1.7 trillion, credit card debt at $1.2 trillion, and total household debt at $18.5 trillion. However, Chang highlighted that when measured as a percentage of income, auto debt is just 5.5%—below the 10-year average of 5.9%—and credit card debt at 4.1% is only slightly above the 10-year average of 3.9%. Credit card delinquency rates and overall household debt also remain near historical norms, and total savings—including money market funds—reached a record $25.4 trillion in Q3 2025.
“That implies that consumers in net are not under duress and that the retail sector remains well positioned to outperform in 2026,” he said.
From an investment standpoint, retail cap rates have stabilized around 6.8%, with single-tenant retail in the low 6% range and multi-tenant averages near 7%. Chang pointed out that retail property transactions rose 12% compared with the 2014–2019 average, underscoring ongoing investor confidence.
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