Surging Demand, Limited Supply: Retailers Leverage Site Selection Strategies to Navigate the 2025 Retail Market

The U.S. retail real estate market is experiencing a paradox: while headlines highlight bankruptcies and closures, the underlying fundamentals remain strong. Vacancy hovers near historic lows, competition for quality space is intense, and new construction is historically limited. For retail tenants, this means strategic, conflict-free site selection strategies are essential. Site Selection Group (SSG) provides comprehensive site selection services to help brands navigate this supply-constrained market and secure optimal retail locations.

Market overview: Tight market despite headwinds

• Vacancy Rate: The national retail vacancy rate stands at 4.8% as of Q1 2025, just 15 basis points above its all-time low.
• Move-Out Spike: Over 108 million square feet of space vacated—driven by bankruptcies (Joann, Rite Aid, Forever 21).
• Absorption: First negative net absorption since 2020 (-7.8M SF), yet demand quickly backfills prime space.
• Market Insight: Despite noise from store closures, tenant demand continues to outpace supply in quality locations.

U.S. Retail Vacancy Rate (2020–2025)

Leasing trends: Competition for smaller, high-quality space

• Volume: Leasing rose to 71M SF in Q1 2025, up 8% from Q4 2024.
• Deal Size: 67% of leases are for spaces under 2,500 SF, with strong activity from food & beverage and service-based tenants.
• Speed: 30% of leases signed within five months of listing, highlighting urgency and competition.
• Market Insight: With 40% of inventory rated two stars or lower, newer retail space is a rare and valuable commodity.

Rent dynamics: Growth slows, but remains positive

• YoY Growth: Retail rents rose 1.7% in 2025, down from the post-pandemic peak but aligned with long-term averages.
• Geography: Southern and western markets continue to outperform due to demographic growth.
• Outlook: Rent spreads on long-held leases remain high; efficiency per SF is up significantly since 2019.
• Market Insight: High occupancy costs are now the norm, but well-located tenants continue to see ROI.

Retail Rent Growth (YOY, 2020–2025)

Construction pipeline: Historic low supply additions

• New Deliveries: Just 81M SF/year since 2020, less than a third of 2000s levels.
• Net Supply: Less than 2% growth in total inventory since 2019.
• Future Outlook: Projects are limited to pre-leased pads and mixed-use ground-floor retail.
• Market Insight: New retail space is scarce. Most tenants must compete for existing inventory.

Retail Construction Deliveries (Million SF, 2020–2025)

Investment market: Stability returning

• Sales Volume: $59B in 2024 (+8% YoY); strong momentum continues into 2025.
• Cap Rates: A broad range, from sub-5% for QSRs to over 7% for dollar stores and pharmacies.
• Buyer Mix: Private equity and 1031 exchange buyers dominate as institutions remain cautious.
• Market Insight: Liquidity is improving, but so is competition. Understanding landlord dynamics is critical.

Strategic value of Site Selection Group

1. No Conflicts: SSG never represents landlords.
2. Market Intelligence: Data-backed insights on demographic trends, market availability, incentives, and competition.
3. Custom Strategy: Aligning location with demographic, customer segmentation, brand segmentation, and operational goals.
4. Real Advocacy: Every lease is negotiated purely for the tenant's benefit.
5. Market Insight: Landlords have their advisors. Shouldn’t you?

Conclusion

In today's retail real estate environment, the imbalance between supply and demand creates challenges and opportunities. The best locations go fast, and rental rates are firming. Site Selection Group delivers conflict-free expertise that empowers retailers to act decisively and strategically.