4Q24 U.S. Retail Market: Trends & Conditions

In the fourth quarter of 2024, retail fundamentals remained stable, but strong. Availability remains at a decade-low level, despite an easing of lease activity. Asking rent growth has eased overall, but much of this is due to more space being available in subprime areas and centers. Across the year, deliveries outpaced net absorption for the first time since 2020, although the pipeline for new retail space has slowed even further, ensuring very little competition to existing centers. Much of the development activity is centered on landlords investing in their own properties, which will help strengthen growth in property values.

Economic Conditions and Retail Demand Drivers

• Consumers are resilient. Despite an uncertain economic climate, retail sales continued to surprise on the positive side, with a solid holiday season and a rebound in the automobile and parts sales coupled with the furniture and home furnishings categories.
• Wage growth remained higher than inflation for the seventh consecutive quarter, growing to a 122-bps spread on a year-over-year basis.

Capital Markets

• U.S. retail capital market volume remained well below 2021 to 2023 levels, with just $49.5 billion traded in 2024.
• Corporate buyers quietly expand their reach. Across the globe, corporations are expanding their real estate holdings, in both high-street and suburban districts. This was especially true in the U.S. during 2024, which saw a 56% increase in corporate buyer volume.
• Fundamentals remain strong despite an increase in store closures. Commercial real estate rent indices show that retail has outperformed the field, with rent gains on a month-over-month, quarter-over-quarter, and year-over-year basis. Retail remains the only CRE type to show gains across all three time periods.

Leasing Market Fundamentals

• The U.S. retail availability rate held steady at 5.0% for the fifth consecutive quarter. Lease volume remained low at just 32 million sq. ft. in 4Q, which is 28% below the ten-year average.
• Urban retail has been challenged since the pandemic, but a deeper look at the data shows that small-shop space remains extremely tight, with an availability rate of just 2.6%.
• Just 6.7 million sq. ft. of new retail space was delivered in 4Q 2024. After an upward revision of 3Q 2024 figures, this is a new all-time low.

Outlook

• Although store closures are expected to outpace openings in the early quarters of 2025, the lack of new development and the strong fundamentals of prime centers will allow the retail market to navigate the bumps.
• The baseline forecast suggests that asking rent growth will remain around 2% for 2025, and a slight increase to 2.3% for 2026.
• The waiting game of capital markets investment appears to be over, as interest in multi-tenant retail assets is growing, with the $14.4 billion in retail trades during 4Q making it the highest of the year and is 6.4% higher than 4Q 2023. Activity is expected to pick up in 2025.