top of page

The Equilibrium in Retail Space: A Look Ahead

In an era marked by uncertainty, the U.S. retail sector stands out for its stability and resilience. The close of 2023 saw the retail market at its zenith of robustness, with a record-low national vacancy rate of 4.0%. This firmness is anticipated to continue, anchored by consistent demand and supply dynamics, regardless of broader economic fluctuations.

The Surge in Demand: A Retail Renaissance

Over the last trio of years, the retail world has seen a significant transformation. A notable decrease in store bankruptcies and closures has reduced the vacated retail space by 20% compared to the pre-COVID era. This decline in exits, combined with a surge in consumer expenditure, has significantly constricted the availability of retail space, creating a sellers' market.

The Supply Side: A Constraining Factor

Conversely, the supply side has also played a pivotal role in shaping the market. The dearth of new retail construction, alongside a brisk pace of demolitions, has brought about the smallest increment in net retail space in decades. In 2023, after adjusting for demolitions, the net addition to retail space plummeted to an all-time low of 52.9 million square feet since such records began.

From 2018 onwards, the U.S. has witnessed the demolition of over 160 million square feet of vacant retail space, underscoring a significant shift in the market dynamics.

A Tight Market with Resilient Conditions

These dual trends – a boost in demand and a squeeze on supply – have culminated in one of the tightest retail markets in history. CoStar's projections, which span seven potential economic scenarios, suggest that this market tightness will prevail. Only in the most extreme scenarios do we see the vacancy rates inching above 5%, remaining well below the decade's average even in those instances.

The Pillars of the Current Retail Market Outlook

Historical Comparisons: The current vacancy rate is notably below the average of the past decade, indicating a strong buffer against potential downturns.

Retail Sales Vigor: Excluding online transactions, retail sales have risen 10% above the pre-pandemic figures, even when adjusted for inflation. This uplift indicates a robust market, with closures likely confined to specific underperformers.

New Supply Restraints: With a notable dip in retail construction starts in 2023, the fresh supply is anticipated to remain scarce. This lack of new entries is crucial for maintaining low vacancy rates, as the market dynamics pivot more on demand factors.

Future Prospects: Balancing Act Between Demand and Supply

While consumer spending might waver, potentially affecting demand, the planned expansion by retailers into thousands of new stores suggests a sustained need for retail space. With the supply side unlikely to catch up swiftly, the equilibrium in the retail market appears set to continue, providing a stable foundation for the foreseeable future.

In this dynamic landscape, the retail sector emerges as a beacon of stability and optimism, promising a balanced supply-demand scenario that could well define the retail market's future trajectory.


bottom of page