CoStar News: US retail property market exceeds expectations

For Raleigh-Durham, continued population and employment growth, combined with limited new construction, should keep well-located retail space in demand.

Stronger leasing, limited supply prompt new revision of CoStar forecast.

The U.S. retail property market is outperforming expectations, prompting an upward revision to CoStar's retail forecast.

Retail vacancy is projected to remain at current levels through 2027 before rising minimally from 2028 through 2030. Rents are also expected to increase modestly as limited new supply and healthy tenant demand continue to support retail occupancy.

The updated forecast reflects stronger demand for retail space than anticipated earlier this year. The number of store openings continues to outpace closings, even as publicly announced store closures have fallen to their lowest level in several quarters, and retailers continue to backfill vacant space more quickly than expected.

Much of the recent leasing activity was driven by various retailers backfilling former big-box vacancies, including many former Joann, Party City and Big Lots stores. In addition, the pipeline of announced-but-not-yet-opened stores remains elevated, providing a continued source of future demand for retail space over the next two to three years.

Supply conditions have also become more stable. While new retail projects already under construction will add space in the near term, the development pipeline remains historically limited to approximately 72 million square feet nationally. Elevated construction costs, higher financing costs and a persistent gap between achievable rents and development cost-feasibility continue to constrain new construction.

As a result, new supply remains concentrated in a relatively small number of high-growth markets and build-to-suit projects, limiting developers' ability to respond quickly to increased demand from retailers.

Although the forecast has strengthened, risks remain tilted modestly to the downside. Higher energy prices resulting from geopolitical conflict involving Iran could further weigh on consumer spending and retailer profitability.

Additional risks include renewed tariff uncertainty, further deterioration in the labor market leading to slower wage growth, and weaker population growth resulting from stricter immigration policies. Each could reduce retail sales growth and slow tenant expansion plans over the forecast period.

Despite those risks, the longer-term outlook for the U.S. retail sector remains favorable. Store openings continue to outpace closings, leasing activity remains healthy, and retailers have demonstrated a willingness to expand into existing space as it becomes available.

At the same time, limited construction activity is preventing the supply response that has historically followed periods of strong performance. Combined with record retail sales productivity, these trends support balanced market conditions, a modest acceleration in rent growth, and a national vacancy rate forecast to remain below 4.5% over the next five years.

-

Article Provided By: Brandon Svec, CoStar Analytics

What does these mean for the Raleigh-Durham market?

For Raleigh-Durham, continued population and employment growth, combined with limited new construction, should keep well-located retail space in demand. High construction and financing costs are making new development difficult, increasing the value of existing and second-generation space that retailers can occupy more quickly and cost-effectively. For property owners, this should support healthy occupancy and modest rent growth, while tenants may face increased competition for quality locations. Overall, the Triangle appears well positioned to benefit from continued retailer expansion and a constrained supply pipeline.

Need help navigating the Triangle office market?

Whether you're searching for retail space, marketing a property, renewing a lease, or evaluating an investment, SVN | Real Estate Associates provides local expertise backed by national resources. Reach out to our team to discuss your goals or request a customized market analysis tailored to your business or portfolio.