What's Happening?
CoStar Group has maintained its U.S. retail projections through 2026, despite a turbulent first half of 2025 marked by elevated store closures and negative net absorption. The forecast predicts a rise in vacancy rates, peaking under 4.4% in the latter
half of 2026. Store closures are expected to remain elevated, with net absorption averaging 3.8 million square feet per quarter in 2026. Retail construction starts have fallen to multi-decade lows due to rising costs, and the gap between market rents and rents required for new development persists.
Why It's Important?
The stability in retail projections suggests cautious optimism for the sector, with minimal supply additions supporting balanced fundamentals. However, the forecast carries downside risks, particularly related to tariffs and consumer spending fatigue. Retailers and suppliers have absorbed costs so far, but price increases may strain household budgets and dampen discretionary spending. The retail sector's performance will be crucial for economic stakeholders, influencing employment, consumer confidence, and investment decisions.
What's Next?
Retailers may face challenges in adapting to changing consumer behavior and economic conditions. The impact of tariffs and potential price hikes could further strain household budgets, affecting spending patterns. Retailers will need to navigate these uncertainties and explore strategies to enhance resilience and competitiveness. The forecast suggests that construction activity will remain subdued, limiting new development opportunities.
