With leasing activity at a five-year high, limited amounts of new space coming to the nationwide retail market, the so-called retail apocalypse of the 2010s is becoming a distant memory.

While retail closures are ongoing, with major chains like Walgreens and Family Dollar closing 22 million square feet this year, however the limited new construction and lack of mass bankruptcies are keeping the market tight, leading to strong leasing activity. Retailers leased over 52 million square feet from April to July, surpassing recent years and indicating a tightening market as construction deliveries plummet and pre-leasing dominates. Despite economic uncertainty and inflation, consumer spending remains robust, with disposable income growing and a shift toward discount retailers balancing higher spending.

In the second quarter, Dollar Tree led retail leasing with 119 new leases, followed by Five Below, Harbor Freight Tools, Crunch Fitness, and Burlington. Discount retailers and quick-service restaurants are driving leasing activity, with brands like Wingstop and Starbucks expanding nationally. Freestanding locations, particularly those vacated by Walgreens and Family Dollar, are highly sought after due to their low availability. While luxury retailers perform well, middle-market brands are slowly regaining price-sensitive consumers. The retail landscape has shifted, with physical stores now serving as multi-functional spaces and brand extensions, exemplified by Ace Hardware’s $1 billion investment and Dick’s Sporting Goods’ new experiential stores.

Strong demand for retail space has led to a 2.6% increase in national asking rents to $25.02 per square foot, with some areas like Miami’s Design District and Washington, D.C.’s M Street seeing dramatic rent hikes of 200% and 37%, respectively. Following high-profile store closures, such as Foxtrot and 99 Cents Only, leasing activity surged to a two-decade high. Retailers are navigating rising operational costs and inflation by negotiating creative lease structures, including higher base rates with delayed escalations and leveraging foot traffic to secure deals in both prime and less desirable locations. However, the future remains uncertain, with potential market shifts if retailers push back against steep rents.

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