Retail real estate opened 2026 on a softer footing, with U.S. shopping center absorption turning negative for a third consecutive year. The market gave back 4.6 million square feet in Q1, reversing the 3.8 million-square-foot gain in Q4 2025, according to Cushman & Wakefield. The national vacancy rate rose 10 basis points to 5.9%, though it remains well below the historical average of 7.4%.
The pullback reflects both early-year seasonality and disruption from severe winter weather, but underlying demand signals remain mixed rather than decisively weakening. Retail leasing continues to reset following years of closures and repositioning, with much of the right-sizing cycle that began in 2024 now largely complete, the report said.
Despite softer occupancy, pricing power remains intact. Asking rents rose 2.3% year-over-year to $25.48 per square foot, supported by supply constraints. Only 2.1 million square feet of new retail space was delivered in Q1 and the active development pipeline represents less than 0.3% of existing inventory.
Performance is increasingly defined by geography and format rather than broad national trends. The Midwest and Northeast saw the most pronounced weakening, with rising vacancy across nearly all tracked markets and a 0.3 percentage-point increase in the Midwest region overall, driven in part by weather-related disruption. Boston posted a 0.4-point rise in vacancy, while Los Angeles climbed to a cyclical high of 6.6%.
By contrast, parts of the West Coast continue to stabilize. Vacancy declined in both San Francisco and San Jose, reflecting improving economic traction in select tech-driven markets.
At the low end of the vacancy spectrum, the South continues to anchor national stability. Markets such as Miami, Raleigh-Durham, Salt Lake City and Nashville remain among the tightest in the country.
The outlook for retail is cautious stability rather than contraction, according to Cushman & Wakefield. Store openings are again expected to outpace closures, and vacancy is likely to remain near historically low levels despite near-term volatility in absorption.
However, performance dispersion is widening. Grocery, discount, value-oriented and health-focused retailers are capturing the majority of leasing momentum, while weaker concepts continue to lag, the report said.
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