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Writer's pictureRealFacts Editorial Team

Retail Space Is Going Fast and Pushing Out Local Shops

Retail Space

Across the U.S., demand for retail space is driving up rents and crowding out the small, independent businesses that give neighborhoods character. As vacancies disappear, landlords are prioritizing financially robust national chains over local businesses, forcing mom-and-pop shops to either pay inflated rates or shut their doors. For some small business owners, like Alex Macias of Mesa, Arizona, these market dynamics are all too real.


When Macias’ lease came up for renewal in 2021, his landlord offered a stark choice: double the rent or move out. The furniture store couldn’t manage the hike, and Macias reluctantly closed his business. In his place came a Five Below store—a national discount chain prepared to meet the landlord’s new price. "In hindsight, they were saying, ‘Well, this is what a national tenant will pay. Can you pay that?’" Macias recalls. The answer, like for so many other local businesses, was no.


This isn’t an isolated incident. A recent report by JLL, a real estate firm, noted that Phoenix experienced a 7.4% rent increase in Q2 2024 alone, among the highest in the country. Even Chuckie Duff, a landlord with nearly two dozen retail tenants, finds himself conflicted. “I don’t ever want to be the guy who kicked out a place that people love,” he says. But as market rates soar, many landlords feel pressure to prioritize financial stability, often through leasing to national or regional tenants with deeper pockets and credit ratings that can support higher valuations.


The shift isn't limited to Phoenix. Retail availability in cities across the nation is at historic lows, driven by years of minimal new retail construction and the aggressive expansion of large retailers. For landlords who once faced the struggle of filling vacant spaces, this demand presents an opportunity to capitalize on higher rents. However, for small businesses operating on tight margins, the current market offers limited options, as even a modest increase can strain their budgets. According to Alignable, a business networking platform, nearly six in ten small businesses reported rent increases in the past six months, and over half of independent retailers were unable to meet September’s rent.


These rising costs only add to the financial pressures small businesses face. Labor shortages, escalating material costs, and an expensive lending environment all weigh heavily on their bottom lines. While larger companies often have access to capital to weather these pressures, small businesses must find creative solutions or risk closing up shop.


Sarah Bingham, co-owner of Antique Sugar, a vintage clothing store in downtown Phoenix, has felt the pressure firsthand. Her landlord recently offered her a buyout, hoping to replace the shop with a restaurant in which he had invested. Bingham turned down the offer, finding there were simply no affordable locations left. “The offer was very generous, but we looked around and there was nowhere to go,” she says.


Despite the pressures, small businesses are showing resilience. Ken Giddon, co-owner of the menswear chain Rothmans, navigated the rocky financial terrain of the pandemic by negotiating a new long-term lease agreement in Manhattan. When his landlord agreed to a short-term “Covid survival deal,” Giddon forfeited his security deposit but locked in a lower base rent. “It actually worked out very well,” he shares. “But it was scary.”


As real estate and retail trends continue to evolve, some landlords recognize the importance of preserving a local presence in their spaces. Conor Flynn, CEO of Kimco, a major shopping center operator, notes, “You do need to have a credit-worthy tenant base to make your asset more valuable,” but he also acknowledges the role that independent businesses play in creating vibrant communities. Kimco has experimented with initiatives like "Keys," an incubator program that gave new entrepreneurs a year of free rent to fill vacant spaces. While the program has since ended, Kimco recently invested in the emerging-business fund by Bonside, which provides financing to expanding brick-and-mortar businesses and recoups its investment through sales-based repayments.


Ultimately, finding balance is key. Property owners recognize the value that independent shops and restaurants add—they sponsor local events, drive foot traffic, and foster a sense of community that corporate tenants often can’t replicate. However, they must also face the reality of rising operational costs and market expectations.


The ongoing shift toward prioritizing high-paying tenants highlights the financial challenges of the retail industry and raises questions about the future of independent retail. Small businesses must not only manage financial pressures but also cultivate relationships with landlords to survive in an increasingly competitive market. For some, buying property rather than renting is one solution. Macias, the furniture store owner from Mesa, found that owning a building provided security and control over his business space.


For the many others who rely on rental spaces, resilience, creativity, and adaptability remain critical as they navigate an ever-changing landscape. Independent retailers are finding ways to survive, but as demand for retail space continues to grow, the battle for a foothold in the market is only getting fiercer.

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