Key Takeaways
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• Retailers occupied 5.5M more square feet than they vacated in Q3, reversing negative demand earlier in 2025
• Discount chains such as Dollar Tree, Aldi, Burlington and 7-Eleven are driving store expansion
• Retail construction remains at historic lows, keeping vacancy tight at 4.3%
• Bankruptcy-driven closures create short-term churn but also prime real estate opportunities for expanding chains
What Happened?
Retailers returned to physical expansion in the third quarter, occupying 5.5 million more square feet than they vacated, a turnaround from earlier in the year when high-profile bankruptcies and tariff-driven uncertainty weakened demand. Discount retailers in particular—Dollar General, Dollar Tree, Aldi, Burlington Stores and 7-Eleven—snapped up available space. National vacancy held at a tight 4.3% due to near-historic lows in new retail construction. Retailer bankruptcies have slowed, though 2025 is still on track for net store closures for a second straight year as brands like Big Lots, Rite Aid, Party City and Joann exit thousands of locations. Tractor Supply, despite tariff exposure on 40% of its products, continues aggressive store expansion and is using available bankrupt locations to accelerate growth.
Why It Matters?
The rebound in physical retail demand signals ongoing consumer resilience despite pessimistic sentiment and inflation pressure. With few new retail developments underway, existing space is becoming more valuable—and expanding chains are willing to pay higher rents for high-traffic locations. This dynamic benefits landlords, who are replacing bankrupt tenants with stronger brands such as Trader Joe’s and Ross Stores, often at better lease terms. However, slowing rent growth, rising online sales and the full impact of tariffs remain headwinds. Smaller retailers, especially mom-and-pop restaurants and service providers, are showing signs of strain as closures increase in spaces under 5,000 square feet. The divergence between large national chains and local operators could widen in 2026.
What’s Next?
Demand for retail real estate is expected to remain positive next year, with CoStar forecasting net absorption of 4.7 million square feet per quarter in 2026. Landlords will focus on upgrading tenant mixes, leveraging fast-casual and specialty brands to anchor centers. But risks linger: prolonged tariff impacts may pressure consumer discretionary spending, and persistent cost inflation could accelerate closures among small retailers. Investor attention will center on vacancy trends, rent growth momentum, and the resilience of discount and value-focused chains, which continue to lead the sector’s expansion.
