1Q25 U.S. Retail Market: Conditions & Trends

Economic Conditions and Retail Demand Drivers

• Consumer sentiment remains subdued, with concerns around tariff-driven inflation and a weakening job market leaving households uncertain about their financial outlook and expectations.
• However, hard indicators show that wage growth is solid and continues to outpace inflation. Consumers are still dining out and spending on books, sporting goods, hobbies, and personal care services.
• Retailers remain cautious about potential economic slowing due to tariffs, though discount grocers and warehouse clubs are well positioned to capture consumer demand in that scenario.

Capital Markets

• Sale volume in 1Q 2025 rose 13% from 1Q 2024 and 15% from 1Q 2023. Pricing and cap rates held relatively steady overall, with the exception of grocery-anchored retail, where cap rates have compressed over recent quarters. Top-quartile assets also saw cap rate declines, as luxury retail brands continue to invest heavily in high street locations.
• Retail values led all commercial property types in year-over-year growth at 4.6% and also posted the strongest three-month gain, signaling continued pricing momentum.

Leasing Market Fundamentals

• 1Q 2025 marked the first quarter of net negative absorption since 3Q 2020, ending a 17-quarter streak of positive momentum. This trend is expected to persist through year-end, as retailers continue to scale back expansion plans and shutter underperforming locations.
• Even so, market fundamentals remain solid. The availability rate holds at 5.2%, and asking rents posted a modest 0.8% year-over-year increase.
• Retail space continues to perform at a high level, with sales per SF up 5.2% year-over-year and more than 50% above 2019 levels, despite a 1.7% decline in retail space per capita.

Outlook

• Net absorption is expected to remain negative throughout 2025, as retailers take a more conservative approach to expansion and accelerate closures of underperforming stores.
• Asking rents are projected to grow 1.6% in 2025, with a modest acceleration to 1.8% in 2026 under the base case. In a downside scenario, rent growth slows to 0.4% in 2025, dips to -1.0% in 2026, and rebounds to 1.2% by 2027—driven by limited new construction across retail formats.
• Consumers are expected to stay resilient, particularly among top-quartile income households. Middle- and lower-income consumers will likely trade down to stretch spending power.