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U.S. National Shopping Center Q2 2024 Report: Lowest Vacancy Rate in 17 Years

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The U.S. shopping center market demonstrated resilience during the second quarter of 2024, as highlighted by global commercial real estate firm Cushman & Wakefield in their Q2 2024 National Shopping Center Report. Despite decelerating growth in consumer spending, several key performance metrics, including the national retail vacancy rate, remained stable. The national retail vacancy rate remained unchanged at 5.3% in the second quarter—the lowest level experienced in nearly the last two decades. 

This vacancy rate held steady for the third consecutive quarter, which is the lowest on record since Cushman & Wakefield’s data began in 2007. A low vacancy rate in commercial real estate indicates a strong demand for available space. This means that there are few vacant units or properties within a specific market. 

New York City’s commercial real estate market reflected broader national trends, with the New York metro area recording a net absorption of 232,000 square feet. Positive net absorption indicates a strong demand for commercial space. This means that more space is being leased than is becoming vacant, leading to a tightening of the market and potentially higher rental rates. Although this was a positive recovery, cities in the South, such as Dallas and Austin, outperformed New York and other major U.S. cities in terms of demand.  

While New York’s position as a global retail hub ensures long-term stability, the comparative data suggests a competitive landscape, with southern cities capitalizing on lower vacancy rates and stronger leasing activity. Looking ahead to 2025, the market is expected to experience moderate changes, including marginal increases in vacancy rates as leasing demand softens slightly. 

Retail sales, as defined by the National Retail Federation, include both store-based and online purchases in a broad range of retail setting but excludes purchases at automotive dealers, gasoline stations and restaurants. (Credits: Reuters and Shutterstock)

More Consumer Spending Recorded 

The report shows that consumer spending continues to buoy the retail sector, particularly in high-demand urban centers like New York. Real disposable income increased by 1.1% year-over-year, allowing consumer spending to grow despite rising reliance on credit. Retail tenants, especially discount retailers, have expanded their footprints, with nearly one-third of new store openings nationwide falling into this category. This surge in discount retailing has supported occupancy levels and helped push leasing demand, even amid broader economic uncertainties. 

Moreover, the tight vacancy rate of 5.3% underscores a supply-constrained market. New York, alongside cities like Phoenix and Chicago, recorded positive net absorption despite the broader slowdown. Asking rents increased 3.8% year-over-year, reaching an average of $24.37 per square foot. This rent growth benefits landlords, maintaining strong returns on retail properties. For New York City specifically, the constrained supply of high-quality retail space continues to ensure high demand, supporting both new leasing and renewal activity, particularly in premier locations. Moving into 2025, resilient consumer spending and demand for retail space, especially in premium areas, are expected to maintain rental growth, though at a more moderate pace. 

Shoppers and sightseers walk along 5th Avenue, Dec. 11, 2023, in New York. The National Retail Federation said that retail sales will increase anywhere between 2.5% and 3.5% this year, a solid but still slower pace than the 3.6% seen last year. (Credits: AP Photo/Yuki Iwamura, File)

Caution: Rising Consumer Credit 

While the Q2 2024 report highlights positive trends, significant challenges are on the horizon for the retail real estate market. Year-to-date absorption figures suggest a significant slowdown compared to 2023, reflecting a cautious retail environment shaped by rising consumer credit usage and constrained household budgets. Net absorption, while positive in Q2, remains 91% lower year-to-date compared to 2023, indicating cooling occupier sentiment. Retailers are scaling back expansion plans due to rising costs, not just for rent, but also for store construction and operations. For cities like New York, where real estate costs are already at a premium, these pressures could lead to increased vacancies in the future as retailers consolidate their operations or seek more affordable locations in suburban or secondary markets. 

Additionally, the retail construction pipeline remains constrained, with only 11.3 million square feet of space under development nationally. This limited new supply exacerbates the space crunch, particularly in tight urban markets like New York. The lack of new construction could hinder opportunities for new tenants or expanding retailers. Looking into 2025, new supply is expected to remain limited, keeping vacancy rates relatively low but creating additional challenges for retailers looking to expand or enter high-demand markets. Further complicating the landscape, rising credit card delinquencies may curb consumer spending, potentially softening demand for retail space, especially in discretionary categories. 

Macy’s flagship store in Manhattan. The retailer’s C.E.O. called the consumer environment “challenging.” (Credits: John Taggart for The New York Times)

2025 Outlook 

Cushman & Wakefield’s Q2 2024 report offers a nuanced picture of the U.S. shopping center market. On one hand, the tight vacancy rates and stable absorption figures suggest resilience, bolstered by consumer spending and sustained demand for retail space. Cities like New York, with their global appeal, will likely continue to see solid performance, even if at a slower pace compared to booming southern metros. Retailers, particularly those in the discount space, are expected to maintain a strong presence in these markets, helping sustain low vacancy levels and rental growth. Moving into 2025, retail real estate in New York and across the U.S. is anticipated to remain relatively stable, though the market will continue to evolve in response to changing economic conditions. 

On the other hand, the challenges facing commercial real estate in retail are significant. Rising operational costs, limited new construction, and a slowing pace of net absorption all point to potential headwinds in the coming quarters. In New York, where the market is historically competitive, landlords and tenants alike must navigate these pressures carefully. In 2025, a slight uptick in vacancy rates is expected, though they will likely remain lower than pre-pandemic levels. Easing market conditions could provide retailers with more negotiating leverage and availability of space, allowing for more flexible expansion strategies. As the retail sector continues to adapt to economic shifts and evolving consumer behavior, strategic flexibility and innovation will be key to maintaining stability and growth in one of the country’s most prominent commercial real estate markets.