The future of retail is bright for those willing to innovate, says Kathleen Brill, executive vice president and director of leasing and strategic partnerships for East Peoria, Illinois-based Cullinan Properties.
“It’s no longer about square footage — it’s about activation,” emphasizes Brill. “Mixed-use, walkability and experience will continue to shape leasing trends.”
Grant Mechlin, executive director of retail and multifamily brokerage services for St. Louis-based Sansone Group, says the narrative of retail leasing has shifted from survival to strategy.
Location, Experience, Strategy: The New Rules of Retail Leasing
“Retailers are being more selective about where and how they grow, but there is no slowdown in activity,” he says. “Physical stores remain critical to brand identity, customer acquisition and fulfillment. Looking ahead, we expect to see more hybrid uses, especially where retail blends with wellness, services and entertainment.”
Today’s retailers are activating their storefronts and rightsizing their footprints at a time when the cost of construction is at a record high, and many national chains have announced store closures or bankruptcies.
The supply pipeline, already extremely thin by historical standards, will be further constrained by rising construction costs, helping limit fluctuations in vacancy rates, states Cushman & Wakefield in its first-quarter retail report. The brokerage firm reports a national vacancy rate of 5.5 percent, up 20 basis points from the historic low observed a year ago.
The amount of retail space under construction in the first quarter totaled 10.6 million square feet, down from 11.6 million square feet in first-quarter 2024. Cushman & Wakefield’s scope of data includes neighborhood, power and strip centers, but it excludes malls, outlets and freestanding retail product.
Retail store closures across the country may free up almost 140 million square feet of much-needed retail space, according to JLL in its fourth-quarter retail report (the latest data available from the brokerage firm). Junior anchors Party City, Walgreens, Rite Aid and Badcock Home Furniture have closed or plan to shutter a total of 2,693 locations nationwide.
Big box stores, including Big Lots, 99 Cents Only, American Freight and Dirt Cheap, have or will close 1,528 locations. JLL includes malls, power centers, shopping centers and other general retail categories in its coverage.
Terry McCollom, president of Pana, Illinois-based McCollom Realty Ltd., says he has never observed the cost of construction as high as it is today in his more than 50 years in the business. “It’s out of control,” he says. “Future development will be very slow, except for major corporations like McDonald’s or Starbucks that can build their own properties.”
In March, outsized one-month increases occurred in the producer price indexes for steel mill products (7.1 percent), aluminum mill shapes (5.1 percent) and lumber and plywood (2.7 percent), according to the Associated General Contractors of America (AGC).
President Trump imposed a 25 percent tariff on steel and aluminum imports starting March 12, affecting the cost of many domestically produced construction materials, equipment, heavy trucks and trailers, according to the AGC.
On April 2, the president imposed a “reciprocal tariff” policy, including a 10 percent baseline tariff on almost every country. Some of the president’s goals for the tariffs include restoring U.S. manufacturing, helping offset planned tax cuts, paying down the national debt and reducing trade deficits such as the one the U.S. runs with China, according to CNBC.