Q2 Retail: Absorption in Negative Territory Amid Moveouts and Limited Supply

The U.S. retail environment during the second quarter was marked by negative absorption, limited supply and slightly elevated vacancy rates.

In addition, “this year was always going to be one of recalibration for the retail market as the cumulative effects of higher interest rates, inflation and changing consumer behavior had led to sector-specific headwinds and high-profile corporate bankruptcies late in 2024,” according to Cushman & Wakefield’s MarketBeat write-up.

The reports outline several reasons for negative absorption. The Colliers US Retail Market Statistics report explained that the remaining available retail space tends to be of lower quality. “Tenants are looking for more modern space in affluent areas, but have limited options,” Colliers analysts pointed out.

Meanwhile, Lee & Associates’ North America Market Report explained that negative net absorption is due to bankruptcies and store closures. While moveouts are generating more space, “tenants and brokers in the field continue to report healthy competition for quality space, resulting in available space backfilling at the fastest pace in nearly 15 years,” Lee & Associates analysts said.

Added to the issue is the ongoing limited supply. The Colliers analysts noted that high costs and financing rates are “driving a shortage of first-generation space as national retailers seek to expand, especially in fast-growing markets like Texas.” Cushman & Wakefield analysts agreed, adding that higher real estate costs had already been a concern for retailers, especially in the area of store fit-outs.

Concern has also been raised about tariffs. “Abrupt shifts in tariffs and trade policy are creating uncertainty for retailers and contributing to a more cautious leasing environment,” Cushman & Wakefield analysts added.

All three reports point to a smaller pipeline with fewer deliveries, which will continue to impact the retail sector. Cushman & Wakefield experts noted that ongoing deliveries will be further constrained by costs, resulting in limited vacancy rates, at least until economic clarity emerges.

Meanwhile, Colliers experts anticipate that “rent growth is expected to continue slowing in the coming quarters as recent store closures and space to the market. However, with limited supply and low overall availability, much of the space will likely be backfilled quickly.”