The retail real estate market in 2025 will face a unique combination of limited new supply, constrained financing opportunities, and evolving consumer preferences. While the high cost of capital continues to challenge new developments, retail tenants are adapting by prioritizing strategic location selection and experiential offerings to thrive in a changing environment.
Limited New Retail Supply Drives Competition for Space
Retail availability is expected to remain at record lows in 2025 due to a constrained supply pipeline. With limited new space coming online, tenants will compete fiercely for prime locations. The elevated cost of capital, even with slightly lower interest rates, will restrict the financing of new projects and expansions. In many markets, rental rates are not high enough to justify the expense of development, creating a bottleneck in supply.
According to CBRE Econometric Advisors, retail availability rates are likely to stay tight, leading to further rent growth. However, some relief may come from store closures, which could release highly sought-after locations in open-air strip and power centers. Retailers with viable business models will seize this opportunity, often signing longer lease terms to protect themselves against potential supply disruptions.
Changing Consumer Habits Reshape Site Selection
The economic landscape and consumer behavior are evolving rapidly, presenting both opportunities and challenges for retailers. High inflation and ongoing economic uncertainty have heightened consumer focus on essentials, which account for roughly 65% of total spending, according to the U.S. Bureau of Economic Analysis. This trend will likely boost demand for grocery-anchored centers, one of the strongest-performing segments in retail real estate.
Simultaneously, e-commerce continues to expand its influence on the retail market. Online sales (excluding autos and gasoline) are projected to exceed 30% of total retail sales by 2030, compared to 23% in 2024. As a result, many retailers are consolidating their physical footprints, reducing their square footage by approximately 2% annually, according to the National Retail Federation.
This shift is prompting a migration from traditional malls to open-air centers, which are better suited to facilitate e-commerce logistics like online order pickups and returns. Retailers that once thrived in enclosed malls are pivoting their expansion plans toward community, neighborhood, and strip centers, capitalizing on their ability to attract steady foot traffic and align with consumer preferences for convenience.
As residential markets rebound with easing mortgage rates and increased housing turnover, demand for retail catering to homeowners—such as home goods, furniture, and home improvement stores—is expected to rise. Retailers operating in these categories may prioritize markets with robust population growth and strong job creation to capture this demand.
Top Retail Markets to Watch in 2025
Several cities are expected to stand out as key retail markets in 2025, driven by population growth, infrastructure investment, and favorable economic conditions:
● Phoenix: The combination of young families and retirees moving to Phoenix has bolstered the city’s retail market. Strong suburban development and infrastructure improvements have made it a magnet for national brands and local businesses, reflecting long-term confidence in the area’s consumer base.
● Austin: Known for its thriving tech industry and cultural vibrancy, Austin’s rapid population growth and affluence create significant demand for diverse retail offerings. The city’s creative energy and growing base of high-income residents present a unique opportunity for retailers to cater to an increasingly sophisticated audience.
● Dallas: With a robust economy, strong job market, and growing population, Dallas is one of the country’s most competitive retail markets. Retail absorption remains high, while availability stays tight, attracting both national chains and boutique brands eager to establish a presence.
● Nashville: Boasting a booming tourism industry and a strong healthcare sector, Nashville sees consistent retail demand, particularly in experiential and high-end formats. The influx of younger residents has spurred growth in mixed-use developments, though the city faces some of the lowest retail availability rates in the country.
● Charlotte: This growing financial and tech hub appeals to young professionals, driving demand for lifestyle and experiential retail. Its affordable cost of living and warm climate continue to attract new residents, making suburban and urban locations increasingly desirable for retailers.
The Rise of Experiential Retail
With supply constraints limiting opportunities for expansion, retailers are turning their focus inward, optimizing existing spaces through experiential strategies. This approach, often referred to as “retailtainment,” blends shopping with dining, entertainment, and other activities to create immersive experiences that engage customers.
Rather than simply expanding their physical footprint, brands are using technology like augmented reality, interactive displays, and spaces for events to enhance customer engagement. These experiential elements not only attract consumers but also encourage longer visits and higher spending, reinforcing the relevance of physical stores in an increasingly digital world.
This trend aligns with the growing demand for memorable experiences among younger generations. From interactive pop-ups to unique in-store events, retailers are finding innovative ways to differentiate themselves and drive foot traffic. This strategy is particularly valuable in markets with constrained supply, as it allows tenants to maximize the value of their leases and build stronger connections with consumers.
Looking Ahead: Opportunities and Challenges
While 2025 presents challenges for retail real estate—such as high development costs and shifting consumer habits—it also offers opportunities for retailers and investors who adapt to the evolving landscape. Markets with strong population growth and economic momentum will continue to attract retail demand, while experiential strategies and strategic site selection will help retailers stand out in a competitive environment.
Ultimately, the constrained supply of high-quality retail space underscores the importance of creativity and adaptability in the retail sector. As consumers’ preferences evolve, those who can blend physical and digital experiences while delivering convenience and value will emerge as leaders in the next phase of retail real estate.
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