Investor confidence in the retail sector is holding firm as the market heads into 2026, even after a year marked by economic and operational challenges. While demand for retail space softened in 2025 and net absorption slipped slightly into negative territory, overall vacancy remained stable at roughly 5%. That balance helped support modest rent growth of about 1%, according to Marcus & Millichap Chief Intelligence & Analytics Officer John Chang.
The cooling in activity reflects broader economic uncertainty, including the impact of higher tariffs that led many retailers to slow or rethink expansion plans. Even so, several metro areas—such as Charlotte, Austin, Boston, Indianapolis, Miami, Minneapolis–St. Paul and Northern New Jersey—are expected to end 2025 with vacancy rates below 4%, highlighting pockets of continued strength.
Shopping malls continue to weigh on overall retail vacancy, with rates topping 9%. Historically, unanchored centers have carried higher vacancy than anchored properties, but that gap has narrowed since 2020, with both formats now clustering in the mid-4% range. At the same time, new supply has been extremely limited. Only about 10 million square feet of multi-tenant retail space was delivered in the 12 months through the third quarter of 2025, the lowest level of completions since 2012.
Retailers may be moving cautiously, but restrained construction has helped keep vacancies in check—a dynamic that is expected to persist into next year. Total retail construction in 2026 is projected to fall to a record low of roughly 30 million square feet, with more than 70% consisting of single-tenant properties. Even modest demand should be enough to keep vacancy levels tight.
Some concern has surfaced around rising consumer debt, including $1.7 trillion in auto loans, $1.2 trillion in credit card balances, and total household debt of $18.5 trillion. However, measured against income, debt levels remain largely in line with historical norms. Auto debt accounts for about 5.5% of income, below the 10-year average, while credit card debt sits just slightly above its long-term norm. Delinquencies remain contained, and household savings—including money market funds—climbed to a record $25.4 trillion in the third quarter of 2025.
Taken together, these trends suggest consumers are not under significant financial strain, positioning the retail sector to perform well in 2026. On the investment side, cap rates have largely stabilized, averaging around 6.8% overall, with single-tenant assets in the low-6% range and multi-tenant properties closer to 7%. Retail investment activity also remains healthy, with transaction volume running about 12% above the 2014–2019 average—another sign that investor confidence in the sector remains intact.
Source: GlobeSt.