A sharper-than-expected slowdown in home improvement spending has prompted Home Depot to trim its 2025 sales and earnings outlook. With Q3 revenue falling to $36.4 billion (down 3.4% YoY), the retailer’s results spotlight shifting consumer behavior and its ripple effect for U.S. retail real estate. As borrowing costs remain elevated and discretionary spending weakens, credit and leasing risk for retail CRE assets—especially those anchored by big-box home improvement tenants—are set to recalibrate. Capital will seek resilience, not just scale.

Home Depot’s Q3 performance confirms that discretionary expenditure continues to lag, with comparable store sales off 3.1% YoY (per Home Depot Q3 2025 filings). Management points to reduced “large project” activity and persistent consumer caution. Elevated interest rates and inflationary pressure have dampened renovation appetite, undermining sales volumes for high-ticket items. In turn, landlords with exposure to large-format, discretionary-focused tenants may see slower leasing velocity and increased rent negotiation pressure. “We’re seeing more tenants ask for flexibility,” notes a Dallas-based retail broker. The glass facade of suburban power centers glints, but occupancy risk is rising if this trend lingers.

By contrast, not all markets will feel the same stress. CRE360 analysis suggests that local retail properties in metros with stable household formation and lower consumer debt loads could see steadier occupancy, even as national chains retrench. Institutional capital may rotate toward necessity-driven centers—grocery, pharmacy, and service retail—where spending is less cyclical. Meanwhile, private owners in secondary markets face heightened underwriting scrutiny, as lenders and buyers parse tenant rosters for exposure to volatility. Ultimately, bifurcation across markets and asset classes is accelerating. The morning hum outside neighborhood strip centers persists, but not all retail is on even footing.

In response to Home Depot’s outlook cut, institutional investors are likely to heighten risk assessment for retail portfolios with discretionary anchors. Per CRE360, underwriting standards have already tightened: spreads on conduit loans for retail assets have widened 15-25 bps since late Q2 2025, with lenders emphasizing tenant health and lease term duration. Owners of necessity-anchored retail, by contrast, report stable rent collections and lower vacancy risk. If consumer confidence remains subdued, capital could further pivot toward assets demonstrating “essential” tenant durability. In this two-speed market, credit pricing is separating along tenant and location lines.

Looking ahead, retail CRE faces a conditional landscape. Should borrowing costs stabilize or ease in 2026, discretionary spending may recover, lifting leasing and valuation prospects for big-box-anchored centers. However, if consumer caution persists and home improvement demand remains muted, landlords may need to offer greater concessions and re-underwrite income risk. Regulatory scrutiny of retail credit and evolving e-commerce trends add further complexity. On balance, capital discipline will define winners—local market knowledge and tenant quality will anchor strategy. The dawn skyline above regional malls is clear, but uncertainty lingers in the aisles below.