For the data behind the commentary, download the full Q2 2025 U.S. Retail Report.
Tariffs: A Moving Target
The economic outlook has become more uncertain in the last several months, particularly as it relates to consumer spending, which makes up about 70% of GDP in the United States. Consumer confidence has declined relative to where it was entering the year and retail sales have also weakened in the last couple months. The labor market will be crucial to sustaining consumer spending, and while job growth has downshifted, the economy continues to add jobs and the unemployment rate remains historically low at 4.1% as of June. While our baseline forecast does not call for a recession, economic growth is expected to be modest over the next couple quarters as inflation ticks up and consumers and businesses adapt to shifting policy.
Tariffs remain a central question mark, and the next several months will provide guidance on how retailers and their customers respond over the eventful back-to-school shopping season. The size and scope of tariffs remains a moving target, making it difficult for retailers to confidently assess the impacts on supply chains and pricing. This uncertainty is likely already contributing to delayed decision-making on leasing, which is down 20% year-to-date compared to the first half of 2024. Retailers had already begun adopting a more cautious approach to real estate, and that trend has only intensified. Over the past 12 months, store closure announcements have consistently outpaced planned openings, signaling a broader pullback is in the works.
Sluggish Start to 2025
The national vacancy rate rose to 5.8% in the second quarter of 2025, a 20 bps increase from Q1 and a 50 bps increase from a year ago. Net absorption registered -6.5 msf which, outside of the first quarter absorption of -7.1 msf, was the weakest since mid-2020. This also marks the first time absorption has been negative for two consecutive quarters in the post-pandemic era. All four regions of the country exhibited net negative demand: 56 of the 81 markets tracked by Cushman & Wakefield Research experienced absorption declines. Birmingham, St. Louis, Phoenix, Charlotte, San Francisco, and Houston bucked the trend and were the markets with the strongest positive absorption during Q2.
The reversal in net demand is leading to easing pressure on asking rents. Nationally, asking rents for shopping center space averaged $25 per square foot in the second quarter, which represents a 2.3% year-over-year (YOY) increase. Rent growth has taken a material step back from early 2024 when it was trending above 4.0%, and now retail rent growth is below the current rate of inflation. Increasing numbers of store closures and mounting cost pressures on tenants are likely to further dampen rent growth in the next several quarters.
For the data behind the commentary, download the full Q2 2025 U.S. Retail Report.
