As we enter the final stretch of 2025, the retail sector is showing signs of balance after a rough start to the year. Even in a mixed economic environment with strong consumer spending from higher-income households, a softening labor market, elevated tariffs pushing some costs higher, the retail market continues to show resilience. Demand is stabilizing, supply remains historically tight, and investors are returning to the table.

Despite headlines about bankruptcies and store closures earlier in 2025, the market made a meaningful pivot in Q3 2025. Move-ins surpassed 91 million square feet, the strongest level since 2022, and move-outs decelerated as the surge of closures from late 2024 and early 2025 leveled out. Space availability is still near a three-year high, but it’s important to remember that availability today remains roughly 12% below the 10-year historic average. 

Leasing Momentum Returns & Quality Space Remains Scarce

Leasing activity has now risen for three consecutive quarters and reached a three-year high in Q3. The median time-to-lease fell under seven months, which is a record low. While high-quality spaces continue to lease even quicker; nearly a third of all 2025 leases were signed in under five months.

Small-format retail remains the bright spot of the industry. More than two-thirds of Q3 leases were for spaces under 2,500 square feet as restaurants, fitness, wellness, and discount concepts continued to drive demand. Dollar General, Five Below, Boot Barn, and multiple fitness operators remained among the most active tenants.

Larger-format retail is still a small share of overall deals but continues to contribute meaningful square footage. Crunch Fitness, The Picklr, Burlington, Hobby Lobby, and Academy Sports each signed for more than 200,000 square feet this year. Availability in 25,000-plus-square-foot boxes declined in Q3 for the first time since closures accelerated in early 2024.

Market feedback from landlords and brokers continues to highlight one theme; truly quality space is incredibly limited. Nearly 40% of all available inventory is rated 2-Star or below, and only a quarter of available space was built in the past 25 years. For tenants seeking newer buildouts in prime locations, options remain scarce. That scarcity is helping accelerate backfilling: some landlords are securing rent bumps north of 40% when second-generation space comes back to market.

Source: CoStar News

Rent Growth is Slower, But Fundamentals Are Solid



National retail rent growth slowed to 1.7% year-over-year in Q3, the most modest pace since 2020. This is less a sign of weakness and more a return to normal after several years of outsized post-pandemic growth.

Average asking rents stand at $25.50 per square foot, and occupancy costs are back to long-term norms. Importantly, adjusted retail sales per square foot reaccelerated to 4.2% year-over-year in August, providing the revenue support needed to hold rents steady even as growth cools.

Performance continues to vary widely by geography. High-growth Southern and select Western markets (Austin, Dallas, Orlando) are still posting 3–5% annual rent gains. More mature markets in the Northeast, Midwest, and coastal California generally trail the pack, reflecting slower population growth, higher operating costs, and a heavier supply base.

Source: CoStar News

Retail: Fort Collins, Loveland & Larimer County

Source: CoStar

Retail: Greeley & Weld County

Source: CoStar

New Construction Hits Historic Lows



Construction activity is at its lowest point in more than a decade, held back by elevated financing costs, rising materials prices, tariffs, and the inability to justify new construction rents relative to the cost of development.

Under-construction volume fell below 50 million square feet for just the fourth time on record. Most of what is being built today falls into two buckets: build-to-suit projects and small pad sites. Speculative development remains extremely rare.

Meanwhile, developers have demolished or repurposed 157 million square feet of obsolete inventory since 2020, far outpacing speculative deliveries. This ongoing removal of aging space has helped tighten fundamentals and improve quality in many markets.

With cost pressures unlikely to ease meaningfully in the near term, the development pipeline is expected to remain lean for years. For owners and investors, this scarcity continues to support long-term rent stability and value preservation.

Source: CoStar News

Retail Ends 2025 on Solid Footing

The retail sector is finishing 2025 in a stronger position than many expected six months ago. Demand has stabilized, leasing momentum has returned, and supply remains historically tight. While the economic outlook calls for slower growth in the near term, the fundamentals of retail real estate, which include steady consumer spending, limited new construction, and strong backfill demand, continue to support a market that feels healthier, more balanced, and positioned for long-term durability.

Source: CoStar News

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