What: U.S. open-air shopping centers achieve record low 6.2% vacancy rate amid strong retailer demand and limited new construction, defying e-commerce doom predictions.

Why it is important: This trend challenges long-held assumptions about e-commerce's impact on physical retail, demonstrating how market constraints and evolving consumer preferences are creating a more sustainable balance in retail real estate.

The retail real estate market is experiencing unprecedented tightness, with open-air shopping center availability reaching a historic low of 6.2% since CoStar began tracking in 2006. This scarcity reflects a combination of strong retailer demand and limited new supply, particularly benefiting centers anchored by big-box chains, discount merchants, and supermarkets. The constraint on new development, driven by higher interest rates and soaring building costs, has created a market dynamic where landlords have gained power to raise rents as leases expire. Major retailers continue to demonstrate confidence in physical retail, with discount chains adding hundreds of new stores and Walmart planning 150 new locations over five years. Green Street estimates that rents would need to increase approximately 65% on average for new construction to be profitable, suggesting these tight market conditions may persist.

IADS Notes: The historically low 6.2% vacancy rate in U.S. open-air shopping centers reflects a broader transformation in retail real estate. Simon Property Group's December 2024 report of 6.4% traffic growth over Black Friday weekend demonstrates the continued strength of well-positioned physical retail. This success comes as property owners moved away from pandemic-era concessions in January 2024, with overall shopping center vacancies dropping to 5.3%. The trend challenges the "retail apocalypse" narrative, as evidenced by CBRE's October 2024 analysis showing strong recovery in foot traffic and successful retailer adaptation. May 2024 data revealed retailers' increasing preference for open-air and value-oriented locations, while Placer.ai's October 2023 research confirmed that open-air lifestyle centers were attracting more affluent visitors. These findings suggest a fundamental shift in retail real estate, where limited new construction and strategic positioning are creating sustainable market conditions that benefit both retailers and property owners.

Boom in US retail real estate defies prediction of ecommerce apocalypse