Key Highlights:
- Retail leasing activity has slowed significantly, with nearly 6 million more square feet vacated than leased in Q1 2025.
- A surge in bankruptcies among major retailers like Big Lots, Party City, and Joann has led to widespread store closures.
- New tariffs, including a 145% levy on Chinese imports, are causing retailers to reconsider expansion plans due to increased costs.
Surge in Retail Bankruptcies Disrupts Market Stability
The retail property industry will face substantial instability in 2025, owing mostly to a wave of bankruptcies among major retailers. Companies including as Big Lots, Party City, and Joann have declared bankruptcy, resulting in a significant rise in unoccupied retail premises. According to Cushman & Wakefield, retailers vacated over 6 million more square feet than they leased in the first quarter of 2025, marking the slowest leasing activity since the epidemic began.
This trend is not isolated to the United States. In the UK, over 45,000 businesses are reported to be in critical financial distress, with sectors like retail, construction, and real estate being the most affected. The combination of rising tariffs, increased operational costs, and changing consumer behaviors has contributed to this financial strain.
Tariff Uncertainties Stall Retail Expansion
The introduction of new tariffs, including a 145% levy on Chinese imports, has created significant uncertainty in the retail sector. Retailers are facing increased costs for goods, materials, and store buildouts, leading many to pause or cancel expansion plans. This hesitation is evident in the slowdown of lease negotiations, as retailers reassess the financial impact of these tariffs.
The construction sector is also feeling the effects, with tariffs on imported steel, aluminum, and lumber driving up costs. These increased expenses are causing developers to delay or cancel projects, further impacting the availability of retail spaces.
Outlook: Navigating a Challenging Landscape
Despite the challenges, some retailers continue to pursue strategic expansions, particularly in markets with low vacancy rates. However, the overall outlook for the retail property market remains cautious. Landlords are becoming less optimistic about replacing vacated spaces, especially in high-cost states. The potential for further tariff-driven price hikes and a shift in negotiating power back to tenants are contributing to market instability.
In conclusion, the retail property market is navigating a complex environment marked by financial distress among retailers and uncertainties stemming from new tariffs. Stakeholders must remain vigilant and adaptable to mitigate risks and capitalize on emerging opportunities in this evolving landscape.
