U.S. Retail Market Shows Early 2025 Weakness

After four years of strong demand, the retail property market is cooling, though not collapsing.

Nearly 15 million square feet of store space was vacated in the first half of 2025, marking the first back-to-back quarters of negative absorption since the pandemic, according to a recent report from Marcus & Millichap. Paradoxically, this is despite low vacancy rates and record-high rents.

“We’re in some uncharted waters when it comes to what happens with tariffs and trade policy and retailers are being forced to become more nimble,” said John Chang, the chief intelligence and analytics officer at Marcus & Millichap and the editor of the report. “Retail space demand remains healthy but it’s going to be a little bit choppy over the short term.”

This pullback comes amidst declining consumer demand, a weakening labor market, and the slow trickle-down of tariff-related price increases. But Chang sees this as more of an adjustment period than a permanent shift.

“As businesses adjust to the new operating environment, that caution level should start to abate and people will start to move forward with their expansion plans or their growth plans in accordance with the economic environment that we’re operating in,” he said.

Retail vacancy rose by 0.4 percentage points but continued to remain low at 4.9 percent, in line with the 10-year average. Strong demand is keeping average asking rents high, $22.96 per square foot for single-tenant space and $21.84 per square foot for multi-tenant space. These are record-level rents, even as construction activity slows.

“There’s a lot of questions about the economic outlook, which is causing businesses to slow down their expansion plans,” said Chang. “But if we were to experience a real slowdown in demand for retail space, we’d see the rent growth flattening out, but we’re still not there.”

Developers delivered only 7.2 million square feet in the second quarter, marking the smallest quarterly total since at least 2000. Dallas-Fort Worth, Houston, Phoenix, and Austin together account for one-third of the new supply coming online in 2025. In California, the Midwest, and the Northeast, retail space growth is even slower, meaning most expansion will have to take place in existing properties.

Chang attributed this to both a general slowdown of retail construction from the booms of the early 2000s, as well as pressures from the current administration’s policies. “As we go forward, I think the tariffs and the immigration policy will both continue to slow construction of every type of commercial real estate,” he said

The Federal Reserve is widely expected to cut interest rates at its next meeting following a cooling labor market this summer, which would be good news for retail real estate. “The lower interest rates will make it easier to acquire retail properties and I think it’s going to ultimately support additional growth and demand for retail space,” said Chang.

In New York, more than $372 million in retail properties traded along Williamsburg’s North 6th Street over the past year, with institutional investors like Acadia Realty Trust, Empire State Realty Trust, and City Urban Realty competing for space. Rents on the corridor have skyrocketed from $45 per square foot 15 years ago to $400–$500 per square foot today.

In Dallas, Berlin Interests purchased a 4,800-square-foot shopping center in June. In May, the development firm De La Vega Capital purchased Turtle Creek Village, a site with 230,000 square feet of office space and 95,000 square feet of retail.

In Florida, Simon Property Group, through an Indianapolis-based affiliate led by David Simon, acquired a 190,962-square-foot ground lease for JCPenney at Dadeland Mall for $15.6 million, giving it control of nearly the entire mall.