Despite the national retail vacancy rate hovering around 4.0% throughout 2025, retailers across the country are recording increased leasing activity. Leasing has been driven by a rise in demand for recently vacated spaces, and with several moveouts occurring at the start of 2025, retailers have quickly taken over these properties. 

 

Throughout the first half of 2025, spaces that were on the market for less than 10 months made up half of leasing activity, with 30% of leases accounting for properties on the market for less than five months. Tenants are increasingly drawn to recently vacated properties as some are able to secure rent increases of 40% or more.

 

Small Spaces Drive Leasing

Leasing has been dominated by small-format stores, as more than two-thirds of leases signed in Q2 2025 were for spaces with 2,500 square feet or less. The move towards small-format properties can be attributed to changing consumer behavior as experiences are now increasingly sought after. 

 

Some of the newest experiential tenants taking over small-format stores include health and wellness tenants. These vary from saunas, spas, and boutique fitness and wellness. Other retailers are also taking an experiential approach by creating immersive flagship stores. One retailer that recently launched an experiential experience is Crocs. In order to create an immersive experience, it launched a 4,000-square-foot store in New York’s Soho neighborhood for consumers to customize their Crocs shoes. The firm’s president Anne Mehlman stated that the goal of the immersive location is to give consumers an opportunity to build an in-person connection, apart from creating a relationship digitally.

 

Active Tenants Aiding Retail

Despite retailers recording a preference for smaller spaces, several tenants have been actively leasing properties over 25,000 square feet. There were around 300 leases signed for properties with this square footage, accounting for 21% of the total square footage leased in the second quarter. Tenants that leased larger properties include Crunch Fitness, The Picklr, Burlington, Hobby Lobby, and Academy Sports. Each of these tenants signed more than 200,000 square feet of space during the first half of 2025.

 

Looking Ahead

Retail fundamentals remain robust moving into 2026. The sector continues to note a shortage of quality space, driven by historically low availability and decreased construction. This slowdown creates competition among retailers for desirable locations as they become available. Ultimately, this tight supply will help retail maintain its balance, effectively supporting market fundamentals.