- Retail vacancy held steady at 4.4% amid slow supply additions and solid leasing.
- Service-based tenants now lease over half of all US retail space, surpassing traditional retailers.
- More than 150M SF of obsolete retail space has been removed or repurposed since 2020.
- Smaller-format leasing leads growth, while anchor spaces face weaker demand.
Market Absorbs Closures
The US retail sector entered 2026 on a more stable footing as the absorption of prior store closures continued. After a rocky period in 2024 and uneven market conditions last year, leasing activity showed resilience and vacancies remained relatively flat, according to Colliers’ Knowledge Leader. Net absorption was negative 4.3M SF in Q1, reflecting lingering impacts from closures. However, robust backfill demand and lower move-outs signaled that the worst may be over for many shopping centers.
Service Tenants Lead Demand
A significant shift in tenant mix continued as service-based occupants — including fitness, wellness, and personal services — now make up over half of all US retail leases. This marks the first time these operators have eclipsed goods-focused retailers, driven by sustained consumer interest in experience-focused offerings. Small-format retail remains highly competitive, with REIT portfolios posting strong occupancy and lease-up times improving.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
Development Constrained Nationwide
Retail construction activity remains limited, with only 53.2M SF underway and most projects being small-format or build-to-suit. Speculative development is rare due to higher cap rates, costly financing, and rising construction costs. Since 2020, the removal or repurposing of over 150M SF of obsolete space has further tightened supply, especially in high-growth markets where demand for modern space is strong.
Rents Hold Firm, Outlook Stable
Asking rents grew modestly in Q1 as supply stayed tight and demand remained consistent. Regional performance varies, with the Sun Belt outpacing coastal markets thanks to favorable demographic trends. Even as closures have made headlines, underlying demand has held up across many markets, reinforcing stability in leasing activity. While overall vacancies may rise slightly in the near term, the gap between store closures and openings is shrinking. The sector’s long-term fundamentals are solid, underpinned by limited new supply, the growth of service tenants, and continued retailer reliance on physical locations.
