As 2025 draws to a close, a familiar refrain echoes in the commercial real estate (CRE) world: “A lot of people thought things would come back this year…what happened?”
But behind that simple observation, there’s more to the story. Although total activity hasn’t returned to pre-pandemic levels, construction, leasing, and market dynamics reveal a market that is selectively expanding, adapting, and evolving—particularly for retail.
For retail research professionals and site selection specialists, understanding these nuances is critical. Let’s dive into some of the shifts in the U.S. retail space and where opportunities could pop up.
Measured Construction Activity
The year 2025 saw retail construction that was lower than past cycles, but it was not stagnant. Developers are cautious, selective, and strategic in where they break ground, reflecting high costs, financing uncertainty, and changing tenant demand.
Some highlights for the year:
- Retail development slowed notably in 2025, with about 4.9 million square feet of retail space under construction, about 50% below early 2024 levels, reflecting a more cautious approach from developers amid market uncertainty. (ICSC)
- Ground-up retail starts totaled approximately 3 million square feet, with activity heavily concentrated in stronger, high-growth metros such as Los Angeles, Austin, Dallas, Houston, and San Antonio. (ICSC)
- San Antonio emerged as a standout, with 607,000 square feet of retail space expected to deliver. That’s its highest completion volume since 2019, driven largely by grocery-anchored and big-box projects. (Express-News)
- Austin’s retail pipeline accelerated sharply, with 1.24 million square feet projected to complete in 2025, more than double its 2024 total, signaling renewed confidence after years of slower retail development. (Austin American-Statesman)
- Retail completions remained regionally concentrated, led by Houston (2.7M SF), Dallas (1.68M SF), Austin (1.49M SF), and Phoenix (1.37M SF), highlighting the continued strength of Sun Belt markets. (ICSC)
Retail construction isn’t dead, but it’s definitely more focused. Developers are zoning in on markets with strong fundamentals, often favoring adaptive reuse, mixed-use projects, or lifestyle- and restaurant-driven spaces over big-box centers.
Leasing Trends: Nuance over Narrative
Retail leasing in 2025 shows a mixed picture:
- Leasing volume is lower compared with long-term averages. Some Q2 reports indicate year-over-year declines of ~29%, reflecting cautious expansion by chains.
- Vacancy rates remain tight in prime retail locations, keeping rents stable or even increasing in some markets.
- Net absorption varies. Some sectors absorbed space positively, while secondary and tertiary locations experienced negative absorption.
For those of us in site selection, location quality matters more than headline volume. Tools that capture granular vacancy, absorption, and rent data will help identify the pockets where demand is strong despite subdued overall market activity.
Sector Divergence: Retail Isn’t Office
The year 2025 continues to demonstrate diverging trends across CRE sectors:
- Office: Low construction completions, with many markets favoring conversions or demolitions over new builds.
- Industrial: Resilient, though cooling from pandemic highs.
- Retail: Subdued overall construction, but high-quality retail remains scarce, particularly grocery-anchored, lifestyle, and restaurant-oriented nodes.
This reinforces the importance of market-specific analysis instead of relying on national averages!
Regional Momentum
Retail construction is concentrated regionally. Texas is leading, with Houston, Dallas, Austin, and San Antonio being responsible for much of the 2025 activity. Western metropolitan areas like Phoenix and Los Angeles also show meaningful ground-up construction. Smaller or tertiary markets have limited construction, but closures and repositioning offer selective opportunities.
Looking Ahead to 2026
There’s potential for an uptick in 2026, driven by demand for experiential, mixed-use, and restaurant-anchored formats. Redevelopment and adaptive reuse projects are shaping urban cores, impacting foot traffic, labor catchment, and retail potential.
And here’s the good news: recent U.S. market data supports this cautious optimism. Commercial real estate prices across asset classes rose year-over-year in October 2025, with retail prices up roughly 4.7%, reflecting strong demand for well-located, high-quality assets and limited new construction. Retail transaction volumes and investment sales also increased in the latter half of the year, particularly in Sun Belt markets, signaling selective investor confidence. Net absorption turned positive in many markets, showing that demand is beginning to absorb available retail space and setting the stage for strategic growth in 2026.
Recent U.S. market data supports this cautious optimism. In Q3 2025, retail fundamentals began to stabilize with net absorption turning positive and asking rents rising, showing demand starting to absorb available space. CoStar’s late‑year retail outlook also indicates that the sector entered Q4 2025 on firmer footing, setting a clearer baseline for 2026 planning.
The 2025 story is about reset, creating a new baseline for 2026 planning.
What This Means for Retail Site Selection Professionals
For retail research and site selection teams, here’s what to focus on:
- Vacancy and rent data matter more than volume. Prime retail is scarce, and effective rent is stable or increasing in many markets.
- New construction is less predictable. Use existing space and adaptive reuse as part of your models.
- Regional and local trends dominate. National headlines mask micro-level variability that can affect site selection and forecasting.
Bottom line: Forward-looking planning is critical! Understanding which markets are seeing active construction, redevelopment, or lease absorption will guide expansion strategies.
A Strategic Reset for 2026
2025 reminds us that the CRE world is evolving, not collapsing. Construction is selective and strategic. Leasing shows strong differentiation by property and location. And the retail market shows opportunity for those who analyze the data and anticipate shifts.
If you’re navigating expansion, redevelopment or market prioritization in 2026, we’re always happy to share our insights or help you translate trends into actionable site selection strategies.
