Investor confidence in retail real estate is climbing, with the sector posting its strongest performance in three years. Steady fundamentals and renewed resilience are drawing both seasoned and first-time investors back into the market.
According to the latest retail trends report, sales activity jumped more than 40% in Q3 2025 compared to the same period last year. Roughly $16.1 billion in retail assets traded during the quarter, while overall capital markets activity reached $45.8 billion—a 29% year-over-year increase.
Values are on the rise as well. Retail property prices grew 3.5% year-over-year as of September, the highest annual increase among all major asset classes. Cap rates averaged 6.84% in the third quarter, down from 7.15% a year earlier, and the spread between lending rates and cap rates tightened to 62 basis points as borrowing costs eased.
Sunbelt metros continued to lead the way. Dallas, Houston, Phoenix, Orlando and San Antonio topped absorption among large markets, followed by strong showings in Austin, Jacksonville, Tulsa, Raleigh and El Paso. Northern New Jersey stood out in the Northeast, while markets such as Seattle and Los Angeles underperformed.
Tenant demand is also showing renewed energy. After two softer quarters, retail posted 1.1 million square feet of positive net absorption in Q3—an indication that some tenant hesitation may be waning. Vacant spaces are being backfilled quickly thanks to healthy demand and limited top-tier supply. Retail REITs report robust pipelines of signed leases slated to open through 2027, helping maintain low availability. Retention rates between 75% and 94% further underscore market strength.
Overall availability ticked up slightly to 5.3%, still well below the long-term average of 6.6%. Leasing activity reached 31.1 million square feet for the quarter—about 30% below the 10-year norm—with freestanding stores, power centers and Class B malls outperforming. Asking rents declined both quarterly and annually for the first time in a decade, largely due to a growing share of obsolete space within the available inventory.
Reports highlighted that roughly 260 million square feet of retail—nearly half of all available space—has sat on the market for two years or more, the highest level on record. Still, availability remains far healthier than during the pandemic or the Great Financial Crisis.
Consumers continue to spend despite inflation and tariff-related pressures, supporting categories such as restaurants, bars, beauty, wellness and specialty retail. Online retail also grew 2% month-over-month in August thanks to strong back-to-school sales.
Source: GlobeSt.