By Shawn Massey, CCIM, CRRP, ALC, Partner, Executive Vice President at TSCG
2024 was a unique year for retail real estate, marked by unexpected resilience and evolving trends. As the year concludes, it’s time to reflect on the dynamic developments that defined the retail CRE industry and consider the cautiously optimistic outlook for 2025.
A “Funky” Year in Review
The year began with many economists predicting a recession, citing rising credit card debt and uneven consumer confidence. Yet, the retail sector defied these forecasts. Retail vacancy rates reached historic lows, supported by a strong employment market, moderating inflation, and Federal Reserve rate cuts. Retail rents surged as landlords capitalized on limited supply and high demand.
The widely speculated “death of retail,” fueled by the rise of e-commerce and the COVID-19 pandemic, was once again disproven. Shoppers reaffirmed their love for in-person experiences, proving the enduring value of brick-and-mortar stores.
Consumer Spending Remains Resilient
Consumer spending remained robust throughout 2024, with holiday sales meeting or exceeding expectations. Most retailers experienced year-over-year growth, bolstered by strategies like the “halo effect,” which integrates online and in-store sales. The demand for experiential retail experiences also played a significant role in driving foot traffic and revenue.
Strongest Retail Sectors
Key winners in 2024 included:
- Beauty & Wellness: The standout sector, as consumers prioritized self-care and personal health.
- Off-Price Retailers: Chains like TJX, Ross, and Burlington continued to attract value-conscious shoppers.
- Experiential Concepts: Fitness centers, dining establishments, and entertainment venues thrived by engaging consumers beyond traditional transactions.
Meanwhile, categories such as apparel, luxury brands, and home goods showed mixed performance, reflecting broader economic uncertainties.
Historical Low Vacancies
Despite a surge in store closures (e.g., Conn’s, Big Lots, Walgreens), retail vacancies remained near historic lows at 4.7% by Q3 2024. Prime retail spaces were quickly re-leased at significantly higher rents, often 20%-40% above prior rates. Urban and suburban locations filled quickly, while rural areas lagged.
The demand for vacant spaces has given landlords the opportunity to transform larger boxes into smaller, more diverse units, enhancing stability and tenant variety within shopping centers. However, the high cost of tenant improvements remains a challenge.
Limited Supply Drives Market Dynamics
New retail construction has been constrained since the 2008 financial crisis, and this trend persisted in 2024 due to high construction costs and rising interest rates. Additionally, over 130 million square feet of obsolete retail space, including malls, has been demolished in the past five years.
The lack of new development has shifted power to landlords, enabling them to negotiate longer lease terms and higher rents. Retail expansion has slowed as retailers struggle to find suitable spaces in thriving markets.
This limited supply is expected to continue into 2025, with hopes of a rebound in retail construction by the second half of the year. Mixed-use developments integrating retail with residential, office, and entertainment components are anticipated to lead the next wave of growth. Especially in the suburban markets.
Restaurant Sector: A Mixed Bag
The restaurant industry presented a complex picture in 2024. While the National Restaurant Association projected $1 trillion in sales, full-service casual dining struggled, particularly in markets like my hometown Memphis. Conversely, quick-service and fast-casual chains continued ambitious expansion plans, focusing on second-generation spaces to reduce costs. High-end restaurants offering unique experiences also performed well.
Increased competition and shifting consumer preferences have created challenges for mid-tier dining establishments. However, the sector’s adaptability and innovation remain key strengths.
The Entertainment and Experiential Revolution
Experiential retail—from entertainment venues to pickleball courts—remained a beacon of growth. Shopping centers embraced community-focused strategies, becoming hubs for both in-person and online consumer engagement. While this sector showed promise, landlords must monitor emerging competition and softening sales.
Experiential retail has also played a crucial role in revitalizing struggling malls and lifestyle centers. By combining shopping with unique activities, these spaces are transforming into vibrant community hubs.
Shifting Retail Footprints
Retail square footage per capita in the U.S. has steadily declined since 2008. New developments increasingly integrate retail into mixed-use communities, emphasizing smaller store formats and omnichannel strategies. While demand for retail space grew to nearly 42 million square feet in 2024, the pace of growth decelerated, reflecting challenges in supply and construction. Interesting to note is approximately 130 million square feet of retail space was demolished since 2021 adding to the dearth of retail space.
Expanding retailers are adapting to these changes by reducing store sizes and leveraging technology for seamless customer experiences. With convenience as a top priority, the integration of fulfillment options like same-day delivery has become standard practice.
Retail Investment Market
The almost $4 trillion retail market experienced a mixed investment landscape in 2024. While higher interest rates narrowed the bid-ask spread, value-add opportunities remained scarce. Rent growth, averaging 4% or more nationwide, attracted investors, particularly in the Southeast and Southwest. Election outcomes and fiscal policies, including the 1031 exchange, could further influence the market in 2025.
Investors are showing growing interest in neighborhood and community centers, lifestyle entertainment venues, and urban high streets. These asset types are well-positioned to benefit from changing consumer behaviors and demographic shifts.
Conclusion: Resilience and Evolution
Retail real estate fundamentals are stronger than they have been in decades. Despite challenges, 2024 was a positive year, showcasing the sector’s resilience and adaptability. Consumers’ preference for in-person shopping—with 67% favoring stores over online channels, according to a recent JLL study—reinforces the importance of physical retail.
As we look to 2025, retail real estate will continue to evolve, driven by demand for experiential spaces, the integration of technology, and a focus on community engagement. While uncertainties remain, the outlook is promising, defined by optimism and innovation.
BIO: Shawn Massey is an adjunct professor at The University of Memphis where he teaches a graduate class in real estate development and undergraduate/graduate in real estate investment. When he is not teaching, he is a full-time 
retail real estate advisor with TSCG. He holds the following designations CCIM, ALC through the National Association of Realtors and CRRP, CLS, SCLS designations through ICSC. To contact Shawn Massey please call (901) 461-7070 or via email at shawn.massey@tscg.com.
