For the data behind the commentary, download the full Q4 2025 U.S. Retail Report.
Vacancy Remained Near Historic Lows Despite Regional Divergence
Retail market fundamentals improved over the course of 2025, driven by limited new supply, robust backfilling activity, and reduced uncertainty around tariffs and consumer spending. These dynamics translated into stronger demand in Q4, as the U.S. economy absorbed 3.4 msf of retail space—the strongest quarterly performance since Q4 2023. After three quarters of weakness, every region posted positive Q4 absorption. The Midwest led with 1.2 msf followed by the West with 1.0 msf, the Northeast with 638,000 sf, and the South with 589,000 sf. Despite this late-year rebound, all regions remained negative for 2025 overall.
The overall national vacancy rate finished the year at 5.7%, up 40 basis points (bps) from Q4 2024 (5.3%). This figure came in slightly above our early-2025 forecasted rate of 5.5%, which did not include the tariff impacts that eventually materialized. Policy and economic uncertainty, along with concentrated retail store closures, led to a challenging start to the year before the market stabilized in the second half. For year-end 2025 vs. 2024, vacancy declined in 20 of the 81 markets tracked, with 16 of them located in the South and West regions, including Montgomery, AL (-170 bps), Northwest Arkansas (-140 bps), San Francisco, CA (-70 bps), Boulder, CO (-60 bps), and Salt Lake City, UT (-60 bps). Of the markets with rising vacancies, most were located in metro areas with challenging demographic trends: New Orleans (+240 bps), Buffalo, NY (+240 bps), Pittsburgh, PA (+190 bps), Providence, RI (+170 bps), and Milwaukee, WI (+170 bps).
Shopping center vacancies remain near historic lows. For context, pre-pandemic vacancy rates typically hovered around 7%, making today’s 5.7% especially tight despite absorption volatility experienced throughout 2024 and early 2025. High quality retail space remains scarce in most markets.
Supply Constraints Persist but the Pipeline Slowly Improved
New supply was historically low in 2025 with just 10.2 msf of new retail space coming online for the year, an all-time low and 63% below the 2015-2019 average. Tariff cost pressures exacerbated an already subdued construction market, dampening the economic feasibility of new development and reinforcing the supply-constrained environment that has prevailed since the pandemic.
However, retail’s resilience is gradually gaining more attention from developers, and the under-construction pipeline of 12.7 msf is the strongest in five years. Neighborhood centers are driving the majority (8.5 msf or 67%) of this construction activity, reflecting continued demand for convenience-oriented, community-serving retail formats that have proven most resilient to e-commerce pressures and demographic shifts. Nearly 50% of all store openings, by square footage, came from discount stores, grocery retailers, and convenience stores typically located in neighborhood centers. Even so, new development is not expected to surge anytime soon, and the pipeline still represents just 0.3% of existing inventory, down from the 0.6% long-term average.
For the data behind the commentary, download the full Q4 2025 U.S. Retail Report.
1 Source: Moody's Analytics
