While many were calling for 2025 to be the year that the U.S. retail sector turned downward, it remained resilient in the face of rising closures and bankruptcies. In fact, the second half of this year is shaping up to be one of the best-performing halves of the past decade.
Here are five key trends that drove the retail sector's performance in 2025.
Consumers defy uncertainty, keep spending amid a slowing labor market
U.S. retail sales increased 3.5% over the past year, while overall personal consumption expenditures increased by 2.8%. Spending wasn't even across income groups. Instead it was more K-shaped, where those with means continued to spend and those at the lower end of the economy felt the pressure of inflation.
Those middle- and lower-income consumers have largely remained employed, however, with spending slightly above 2024 levels.
While overall spending growth has slowed from the surge immediately following the pandemic, consumer spending did not stumble as many expected.
The moderation in spending also reflected the impact of cooling inflation, which fell slightly to 2.8%. This resilience in consumer spending underpinned confidence in retail fundamentals, supporting continued demand for store space by retailers and shopping center assets by investors.
Store closures snapped up at a record pace
After a sluggish start, demand for retail space accelerated in the second half of 2025. Absorption, the net change in occupancy, was negative in the first half of the year due to a significant increase in bankruptcy-driven store closures. However, absorption of retail space turned firmly positive after July. Retail move-ins hit their highest six-month total since 2022 during the back half of the year, while leasing activity rose steadily each quarter.
The lack of available space and strong demand from expanding retailers to backfill closed stores drove the median time for retail space to be leased to a historic low of just seven months.
These trends are set to continue into the new year, as easing retailer bankruptcies and reduced store closure announcements over the past six months have reduced the pipeline of future move-outs to its lowest level in two years.
Retail development remains elusive
Despite the increased leasing activity and strong absorption, retail construction activity hit historic lows in 2025.
Developers started construction on less than 43 million square feet of retail space, the lowest amount on record, while the amount of newly completed space totaled just under 55 million square feet year to date, the smallest since 2007.
This lack of new supply reflects persistent caution among developers and lenders amid elevated costs and financing challenges. With just 52 million square feet of retail currently under construction, supply-side competition is expected to remain limited for the foreseeable future.
Retail rents moderate, but increases remain strongest in the South
Average U.S. retail rents rose 1.9% in 2025, reaching a record $25.69 per square foot, though the pace of growth slowed to its lowest in over a decade. Southern retail markets set the pace with 2.3% in average rent growth, more than double the Northeast’s 1.1% and well ahead of the Midwest's average increase of 0.9% and the West's increase of 0.5%.
Since 2019, rents in Southern U.S. markets have surged 28%, outpacing all other regions due to strong demographic and income growth trends. While nominal retail rents remain highest in the Northeast and West, the South’s growth trajectory continues to attract investors seeking upside potential.
Shopping centers command record prices
Investor appetite for retail assets surged in 2025, driven by tight market fundamentals, strong mark-to-market rent opportunities and the difficulties faced by other property types, resulting in the strongest retail property sales market since the Fed began raising rates in 2022.
Over $66.2 billion of retail property sales have been recorded so far in 2025. While this amount will increase as more property sales are completed near the end of the year, total U.S. retail property sales are already higher than the amount sold in both 2023 and 2024.
Increased interest and solid NOI growth drove pricing to a record $142.23 per square foot, up from $125.11 in 2024. With strong fundamentals and limited supply, 2026 is poised for further pricing escalation as competition for assets intensifies.