📢 Good morning,
Retail vacancy remains stable at ~6.1% nationally, the lowest among major CRE sectors, as consumer spending and service-based tenants offset macro uncertainty. Strip centers and grocery-anchored assets are outperforming with strong leasing and rent growth, while enclosed malls face ongoing bifurcation. Institutional capital is rotating back into retail after years on the sidelines, lured by steady NOI growth and attractive spreads relative to multifamily and industrial.
Vacancy: ~6.1% Q2 2025, steady YoY.
Rent Growth: Neighborhood and community centers posted +2.3% YoY rent growth, malls ~flat.
Leasing: Net absorption ~9M SF YTD through June, led by discounters, gyms, and medical users.
Cap Rates: Strip centers transacting at 6.0–6.5%, malls 8–10%+ depending on quality.
Consumer Spend: Retail sales up 2.6% YoY (July 2025), led by food service and health/beauty.
Segment | Vacancy | Rent Growth (YoY) | Cap Rate Range |
|---|---|---|---|
Neighborhood/Community Centers | 5.8% | +2.3% | 6.0–6.5% |
Power Centers | 6.2% | +1.5% | 6.25–6.75% |
Regional Malls | 9.8% | ~0% | 8–10 |
Returns / Performance Trends
Retail has emerged as a defensive play. Green Street notes NOI growth across strip centers exceeded industrial in H1 2025, driven by necessity tenants and limited new supply. Rent growth is steady in the 2–3% range, supported by stronger tenant margins relative to pre-COVID. Malls continue to bifurcate: top-tier centers command tenants and traffic, while weaker B/C malls face slow erosion.
Lending / Capital Conditions
Lenders are more willing to finance retail than during the 2017–2022 contraction, particularly grocery-anchored centers. Spreads remain ~250–300 bps over Treasuries, putting coupons in the 6.5–7.0% range. Mall financing remains highly selective and priced wide.
Transaction Activity & Investor Flows
Open-air retail transaction volumes climbed ~12% YoY in H1 2025, even as overall CRE investment was subdued. Institutional capital and REITs are net buyers of necessity-based assets; private buyers dominate in secondary markets. Distress remains isolated, largely in older malls without redevelopment paths.
Broader Implications
Retail’s resilience is attracting a capital re-rating. The sector is shedding its “weak link” label in CRE; underwriting stability is driving allocations. Long-term, structural headwinds remain for commodity malls, but retail as a whole has regained credibility as a stable, cash-flowing investment class.
Vacancy stable at 6.1% → lowest among major CRE sectors, highlighting resilience.
Strip rent growth +2.3% YoY → demand led by discounters, fitness, medical.
Cap rates 6–6.5% for strips vs. 8–10%+ for malls → capital bifurcation persists.
Retail sales +2.6% YoY (July) → consumer spend supports tenant health.
12% YoY increase in open-air retail sales volume → institutions reallocating.
Institutional Lens: Grocery-anchored and service-based centers remain the institutional sweet spot. Underwrite moderate rent growth and prioritize tenant credit/lease length. For malls, only fortress assets with redevelopment potential merit new money.
Operator’s Lens: Renew anchor tenants early and layer in service-based users to hedge retail cycles. In open-air formats, push rents cautiously — 2–3% escalations are sustainable. For mall owners, reposition with food/entertainment or explore mixed-use redevelopment while capital is available.
Expect continued outperformance of necessity-based strip centers through 2026.
Malls will see further bifurcation: trophy assets stable, weaker assets under redevelopment pressure.
Investment capital will keep rotating into retail for yield relative to multifamily/industrial.
New construction will remain muted given high costs, supporting landlord leverage.
CBRE — Q2 2025 U.S. Retail MarketBeat. Cushman & Wakefield — U.S. Shopping Center Insights Mid-2025. Green Street — CPPI and sectoral NOI forecasts. ICSC — Retail sales and tenant health snapshots. WSJ — Consumer spending and sector commentary.
Chart1: U.S. Retail Vacancy & Rent Growth (2015–2025)
Chart: Retail Investment Sales by Format (2020–2025)
