REAL ESTATE NEWS

Retail in the early portion of 2026 is following a similar trend as last year — starting with negative demand.

During the first quarter, absorption dropped to -4.4 million square feet, according to a JLL report. The CRE firm noted that this is "repeating the pattern we saw last year," as a group of 2025 Q1 closures brought absorption negative before an eventual recovery.

The largest share of negative absorption was in power centers at -2.3 million square feet during the first quarter of 2026. Neighborhood centers and malls brought -1.2 million square feet each.

That comes as mall vacancy has reached 8.8%, though experiential and food-and-beverage types of tenants continue to help top-tier assets.

Overall vacancy rose from 4.3% in Q4 2025 to 4.4%. Still, by historical standards, it is tight. Freestanding general retail saw positive absorption, adding 400,000 square feet, with vacancy only at 2.7%. The subtype is focused on smaller-format spaces that have been in demand, given a lack of additional inventory.

As has been true for a few years, overall thin supply has offered significant strength to the industry and landlords. With low supply and strong demand comes fast backfilling. The construction pipeline is down to 53 million square feet, down from 53.7 million in Q4, 2025. Much of that is due to obsolete department stores and underperforming strip centers. There were 7.8 million square feet of gross deliveries, partly offset by 2.6 million square feet of demolitions. That brings new supply to about 5.2 million square feet.

New existing space demand is strong. About 36% of new leases during Q1 were signed within five months of the space becoming available, with tenants snapping up space when it's available. Landlords get pricing power from this.

Starts are at a fraction of long-term averages. There's "no near-term catalyst" for a construction recovery, extending the horizon for the current supply dynamic, according to JLL.

The most active categories in openings and closures are typically in food and value offerings. Some of the active categories are restaurants (712 openings, 147 closures); discount/variety (550 openings); grocery stores (365 openings, 106 closures); apparel (124 openings, 200 closures); electronics stores (102 openings, 470 closures); fitness centers (100 openings, no closures), off-price retail (85 openings, 57 closures); drug stores (60 openings, no closures); mass merchandiser (30 openings, no closures) and specialty (21 openings, no closures).

The outlook for the category has three parts. One is a lesson learned through experience that scarcity continues to remain the market's most reliable support. Second, the tenant mix is shifting, with restaurants, grocery, discount and fitness expanding while apparel, accessories and electronics are contracting.

Third, location will matter more than national averages. Sun Belt markets continue to outpace the rest of the country on rent growth because of population growth and an expanding consumer base. Through the rest of the year, location will continue to be the driving factor and the hope is that the negative absorption trends will ease and truly follow that of last year.

Source: GlobeSt/ALM