For the data behind the commentary, download the full Q3 2025 U.S. Retail Report.
Taking Stock of a Slowing Economy
The economic outlook remains highly uncertain. While Cushman & Wakefield’s baseline forecast does not anticipate a recession, downside risks are elevated. Muted job growth and softening consumer confidence are expected to produce a more discerning consumer, potentially weighing on retail real estate demand. Tariffs have begun impacting household and business balance sheets through higher costs and weaker demand. Six months into the new tariff regime, its inflationary impact is evident.
The consumer price index (CPI) through August accelerated to 2.9% annually, up from 2.4% in March. Import-reliant categories like furnishings, electronics, and apparel saw annualized price increases of 5.0% since March. Domestic retail production costs have also risen; the producer price index (PPI) for retail trade increased 2.8% YOY through August, reversing prior price declines.
Demand-side impacts may take longer to materialize. Many firms accelerated imports ahead of tariffs, delaying the financial impact. Retailers are hesitant to cut jobs or investments until financial impacts are clearer, especially as some tariffs may be overturned. Thus far, tariffs have had limited impact on real estate leasing. Negative absorption in early 2025 reflects planned store closures, including 15 msf of space vacated by two big-box retailers that filed for bankruptcy in 2024.
Real personal consumption expenditures (PCE), adjusted for inflation, rose just 0.9% from March to July. Consumers are cutting back on discretionary and big-ticket items to budget for essentials. The economy increasingly relies on the wealthiest households, with the top 10% driving half of all consumption.1 An asset price correction could further weaken consumer spending and retail demand. But barring such an unforeseen shock, leasing activity should remain resilient, with modest disruption in the near term and gradual improvement expected by late 2026.
Holding Steady
The national vacancy rate was unchanged at 5.8% in Q3 2025, up 50 bps from a year ago following negative absorption in the first half. Without a substantial Q4 rebound, 2025 is on pace for the weakest demand since 2020. In Q3, vacancy rates declined in 32 of 81 markets tracked, led by Reno, NV (-60 bps), Palm Beach (-50 bps), Indianapolis (-50 bps), Houston (-40 bps), Sarasota (-40 bps), and Orlando (-40 bps). Of the nine markets with a vacancy rate below 4.0%, only one is outside the South: Boston. Raleigh/Durham, Miami, and Nashville remain the tightest markets with extremely scarce retail space.
The cooling in net demand is easing pressure on asking rent growth. Nationally, asking rents for vacant retail space averaged $25.00 per square foot in Q3, a 1.7% increase from a year prior. Rent growth has slowed from early 2024, when it was trending around 4.0%, and now rises below inflation. This trend may indicate a market gradually shifting to become more tenant-friendly. However, vacancies are primarily in markets and properties with lower asking rates, exerting downward pressure on national averages. At a micro level, extreme scarcity and higher rent growth persist in top locations.
For the data behind the commentary, download the full Q3 2025 U.S. Retail Report.
1 Source: Moody's Analytics
