Why Retail Is Winning Right Now

Real estate experts have been tolling the bell for the retail sector for years. However, after weathering the Great Recession and, more recently, the pandemic, the retail sector has emerged as one of commercial real estate’s most resilient asset classes. Of MCB’s diversity of assets, retail comprises 46 percent, accounting for a large portion of our portfolio. Our investment in this asset class is driven by our thoughtful projections and knowledge of the category’s resiliency and strong demand.

As we prepare to head into ICSC Vegas, MCB’s experts provide a quick roundup of the current state of the retail sector — and share why it’s now the belle of the ball.

Vacancy rates are at a 20-year low for the retail real estate sector.

We’re seeing the strongest retail fundamentals in decades, leading to sizable NOI growth and a falling cap rate environment. Retail is the only commercial real estate product type for which vacancy has seen a steady decline since 2019, according to recent reports. A CoStar report revealed the sector’s vacancy rate is just 4.08 percent, the lowest vacancy rate of any commercial real estate sector and the lowest rate for retail space since MCB’s founding in 2007. A confluence of factors, like a shortage of space and a surge in retail openings, is driving down vacancy rates.

Retail construction delivery remains low, while demand stays strong.

High post-pandemic construction costs — roughly 30 to 40 percent more than pre-pandemic levels — slow down new developments. In 2024, net retail deliveries totaled just over 30 million square feet, approximately 40 percent below the national 10-year average, and annual construction starts are at the lowest they have been in the past 15 years. Deliveries are anticipated to continue to decrease in 2025, with experts predicting that just 20 million square feet of new retail space will be delivered this year .

Decreased delivery of new retail development, coupled with strong demand, puts a premium on existing retail space. In 2024, retail hit record-high rents, with momentum projected to continue for an increase of  2 percent in 2025.

Limited supply drives increasing market asking rents and decreasing average lease time.

We have a scarcity of product versus an invigorated, aggressive demand. Retail is a high-performing asset class. There is strong demand on the leasing side, rents are growing, and properties are seeing cash flow.

The convergence of low supply and consistent demand has increased rents, hitting record-highs in 2024, and is expected to keep rising in 2025. While rents increase, the average time to sign a lease has decreased to an all-time low of 8.5 months, with approximately 98 percent of retail spaces leasing in less than 9 months.

Grocery-anchored centers and experiential retail thrive.

Grocery-anchored centers continue to perform well, pushing to a new low vacancy of 3.5 percent. With consistently strong fundamentals, investor demand continues to grow, and in 2024, investment in grocery-anchored retail properties surpassed 2023 levels.

Experiential and entertainment-focused retail concepts are also on the rise. The physical store is a significant touchpoint with the consumer, allowing brands to showcase who they are, and customers are increasingly looking to have a complete brand experience beyond the transactional when they visit retail locations. We expect to see some of these experiences demonstrated at ICSC Vegas this May, including integrating immersive sensory experiences, artwork, curated food and drink, among other novel concepts.

Want to discuss these trends further or just get to know MCB’s experts better? We’d love to meet you. Set up a time to speak with us at ICSC Vegas, May 18-20, 2025.