In this episode of The REconomy Podcast™ from First American, Deputy Chief Economist Odeta Kushi and Senior Commercial Economist Xander Snyder examine the wave of retailers going out of business and how their abandoned retail space may impact retail leasing dynamics across the country.
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Listen to the REconomy Podcast™ Episode 115:
“In the short term, the slate of store closures seems unlikely to substantially negatively impact the retail rental market. However, I'd say in the intermediate term retail spending could sag and this could ultimately decrease demand to lease retail space.” – Xander Snyder, senior commercial economist at First American
Transcript:
Odeta Kushi - Hello and welcome to episode 115 of The REconomy Podcast, where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American and here with me is Xander Snyder, senior commercial economist at First American. Hey Xander.
Xander Snyder - Hey Odeta. You know, I was at a conference recently and someone asked a really great question about the slate of retail store closures that are scheduled for later this year. They've actually already really begun. This person wanted to know what impact I thought this would have on the retail leasing market more broadly.
Odeta Kushi - Well, I've seen headlines recently of national retailers either closing a number of stores or, in some cases, going out of business entirely.
Xander Snyder - Yeah, places like Macy's, Advanced Auto Parts, 7-Eleven, GameStop, Walgreens, CVS, a number of discount retailers, like Big Lots, are all closing stores this year, so there's quite a lot of them. And then you have stores like Joann's and Party City that are shutting down entirely.
Odeta Kushi - That's quite the list. Okay. I'm feeling a little bit nostalgic about some of these store closures. I mean, like Joann's, Party City, come on. There are a lot of big names here, but how does the number of store closures compared to the aggregate amount of retail space? I mean, is it a lot? Is it a little?
Xander Snyder - That's really the right question. Because to anticipate the broader impact on the rental market, which is what this person wanted to know, you really need to count up. You need to measure how much space is scheduled to close and then compare it to the total amount of available space on the market. At the time, I didn't have those numbers top of mind. And my response was essentially that I'd have to look into it. But I did mention that my hunch was that the very limited availability of retail space that's currently available would at least somewhat offset whatever store closures did end up occurring.
Odeta Kushi - Well, I'm assuming that after the event you went home and you counted up all those stores in space. I'm assuming this is correct. Did your hunch turn out to be correct?
Xander Snyder - Like a good economist, I went home and I counted everything. My hunch was more or less correct, but I did come across some geographic surprises. Namely that retail demand seems to be draining from my home city, Los Angeles, as well as Detroit, but not much in other cities. So, we'll come back to that, the city by city level detail in a minute. First, at a national level, the retail research firm Corsight estimates that approximately 15,000 stores will close this year in 2025, which is roughly double the 7,300 stores that closed last year. And they estimate that approximately 6,000 retail stores will also open this year, which is roughly in line with the number from last year.
Odeta Kushi - So, doing some quick math here, that means that there were approximately 1,300 net store closures. That is, closures less openings last year, and that there will be closer to 9,000 net closures this year. That's certainly a big increase in terms of annual growth of store closures, but retail stores come in all different shapes and sizes. For example, there's the 1,000 square-foot convenience store down the street for me, but there are also 100,000 square-foot Walmart stores. So, store count alone isn't quite enough to estimate the total impact on the national retail market.
Xander Snyder - That's right. We need to estimate, or we need an estimate of, the amount of space planned to be vacated, not just the number of stores. So, some put this figure at close to about 140 million square feet of retail space that's to become vacant this year due to store closures. So, by comparison, there's approximately 12.2 billion square feet of retail stock across the country in total.
Odeta Kushi - For listeners that don't have a calculator on hand, which would actually surprise me since our phones are our calculators, but I digress. 140 million vacant square feet divided by 12.2 billion is about 1.1%. So, that implies that if space became vacant or were not released, the national retail vacancy rate would increase by about 1.1% from 4.1%, where it is today. But, as you mentioned, not all of that newly vacated space is going to sit empty. There will be new openings too, and some of that space will be released.
Xander Snyder - Yes, exactly. And, if you factor in store openings along with those store closures, you get to an increase in the retail vacancy rate of about 0.7% nationally. That's not all that much, especially considering that the current retail vacancy rate, as you mentioned, is 4.1%, and that's near an all-time low.
Odeta Kushi - And that lack of available retail space to lease stems from a decade of underbuilding following the Global Financial Crisis. And when a market is this tight, there's not enough space to go around, even if the demand is there. We certainly saw this dynamic in the industrial CRE space in 2021 and 2022. So, could this suggest that a slightly higher retail vacancy rate would actually be a good thing for the retail market? Is there demand lying in wait, eager to lease up that empty space when it becomes vacant?
Xander Snyder - So signs generally point to yes, although it depends on the type of business. So first, take what I think is the clearest example of this dynamic. Big Lots, a discount retailer, has been closing stores around the country. But there's another brand, Ollies Bargain Outlet, a competing discount retailer, that's taking over approximately 40 of Big Lots’ prior locations. So, this suggests that there's at least some demand to operate even in the locations where stores are closing. So, there's just been too little space to go around in the retail market, which I think has hamstrung a number of retailers' expansion plans. But, beyond these specific examples, certain types of retailers, like restaurants and grocery stores, are planning to open more locations in 2025 than they will close.
Additionally, the average time to lease newly vacated retail space right now is at a multi-decade low. It's only taking about seven and a half months to lease newly vacated space right now. Taken together, I think this suggests that retail space is still in demand, though more for certain types of businesses than others.
Odeta Kushi - So, to sum that all up, these retail closures will have some impact nationally, but it'll be relatively limited in the near term due to the lack of available retail space. Is this also the case in most cities, or are some cities more exposed to falling retail leasing demand than others?
Xander Snyder - Yeah, over the last year, most cities that have had a lot of vacated retail space have also had a lot of space that's been leased up. This suggests that there is sufficient demand in most major cities to absorb at least some of that newly vacated retail space. The exceptions to this trend, as I mentioned a moment ago, are Los Angeles and Detroit. Over the last year, both of these cities had more retail space vacated than leased, suggesting that demand for retail space fell in these two cities.
Odeta Kushi - That's really interesting. You know, it's interesting too that the national story is true in most cities. That's not always the case in real estate, right? Real estate is local. Now I want to shift the focus of the conversation a little bit. So far, we've been discussing the supply and demand dynamics of the retail leasing market, but there's also the issue of retail sales, which is the primary driver of demand to lease retail space in the first place. I know you've written a lot about this recently, and it seems that there are some retail spending patterns that are beginning to shift.
Xander Snyder - Right, there are a few notable changes that have occurred that I think are worth keeping an eye on in the retail sales department. As a brief recap, after quarantining during the pandemic, people went out and spent a lot of money at restaurants and bars and other service-oriented locations, things we couldn't get when we were locked inside. People just wanted to get out. And this drove real inflation-adjusted retail sales up for some time. In the case of restaurants, real retail sales even grew at double-digit rates after quarantine. Now, though, that pattern has reversed. Real retail spending at restaurants has been stagnating since the second quarter of 2024, as real spending at grocery stores has actually been increasing.
Odeta Kushi - That's really interesting. I can personally attest to the restaurant boom post COVID. We were all eager to get out at that time. Well, that's an interesting development and it could certainly be a sign of the consumer becoming more cost conscious and eating in more than they're going out. But, more broadly, headline real retail sales have actually been stagnating or declining for some time since mid-2022.
Xander Snyder - Right, although it's worth mentioning that the pattern of stagnating headline real retail sales has reversed over the last roughly six months. After stagnating for about two and a half years, headline real retail sales have grown since October 2024. And it isn't just spending at grocery stores that's driving this reversal. Real sales of durable, so goods that you use over a long period of time, like cars or household appliances and electronics, these have increased markedly over last several months.
Odeta Kushi - But more durables purchasing has coincided with growing credit card debt and auto debt, and delinquency rates on both of those are increasing as well. In fact, credit card delinquency rates are at levels not seen since 2011, which seems to suggest that consumers, in the face of growing price uncertainty, may be using credit to pull forward demand from the future. Wouldn't that imply that this resurgence in real retail sales is unlikely to last?
Xander Snyder - Yes, I think that the increase in durable purchases that we've seen over the last six months is temporary. And, as it falls, so too will aggregate headline real retail sales. This would reflect falling demand to spend money at retail locations and, therefore, decrease demand to lease retail space, at least eventually.
Odeta Kushi - There are lot of moving parts in this story, Xander. Store closures could be bad, but lack of supply mitigates the extent of this impact. But there still might be a fall in demand to lease retail space due to these consumer headwinds.
Xander Snyder - Yeah, you can make your head spin right round, like a record round round round. I didn't sing it.
Odeta Kushi - Okay, you didn't sing it, thank you. Well, there's the 1980s reference, the 1985 hit, You Spin Me Round Like a Record from the English pop band Dead or Alive. Mark would be so proud.
Xander Snyder - Also worth noting, immortalized by Adam Sandler in The Wedding Singer.
Odeta Kushi - A cinematic classic, I think.
Xander Snyder - Something like that. But, to your point, it's not a straightforward story. And I think it's a case where being explicit about time periods can really help. It will take time, for example, for a pullback in real retail sales to impact the retail leasing market. So, in the short term, the slate of store closures seems unlikely to substantially negatively impact the retail rental market. However, I'd say in the intermediate term retail spending could sag and this could ultimately decrease demand to lease retail space.
Odeta Kushi - What about in the long run?
Xander Snyder - Well, in the long run, of course, we're all dead.
Odeta Kushi - A classic Keynes quote to end the episode expertly demonstrating why economics is so often called the dismal science. All right, well, thank you for joining us on this episode of The REconomy Podcast. If you have an economics-related question you'd like us to feature in the future, you can email us at economics@firstam.com. And, as always, if you can't wait for the next episode, you can follow us on X. It's at @OdetaKushi for me and @XanderSnyderX for Xander. Until next time.
Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast™ from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2025 by First American Financial Corporation. All rights reserved.
