Why Retail Openings Outpacing Closures Isn't the Full Story

We’ve been talking for a while now about the supply crisis that retail has been experiencing. The Great Recession of 2007-2009 certainly had an indelible impact on retail – particularly, it seems, on the plans of developers. New retail space delivery fell from an average of over 200 million square feet per year to a mere trickle of 15 million square feet in 2022.

This notable lack of new construction has thrown retail’s supply and demand equilibrium out of whack. Expanding retailers have few new options as the little space being built is largely pre-leased and centered around built-to-suits and mixed-use projects. The solution, then, for retailers looking to open new stores is second-gen space, vacated by closing retailers. In the last 18 months, we’ve seen a flood of store closure announcements totaling over 10,000 stores with 140 million square feet of potential space impact. In our most recent Retail Market Dynamics report we explore the effect on retail real estate as these closures play out.

The flood of recent closures has resulted in two straight quarters of negative net absorption – which, while not surprising has had a significant impact on space. Retail net absorption totaled -14.5 million square feet for the first half of 2025. However, the decline in leasing activity was moderate, decreasing only 5.7% from Q1 2025 to Q2 2025. This shows that interest in space still exists, even as some retailers consolidate their footprints.

Much of the closure activity is coming from big box, specialty or drug stores, including Joann, Rite Aid, and Big Lots. Despite the wave of closures and hit to net absorption, other retail fundamentals remain relatively stable. The vacancy rate inched up a mere 10 basis points to 4.3%. The moderate increase in vacancy is a result of minimal deliveries and space being removed from the market; demolishments totaled 4.5 million square feet during the second quarter.

Developers remain leery of breaking ground on speculative projects. Retail space under construction fell to 48.3 million square feet and construction starts plunged by more than 50% quarter over quarter to a paltry 4.9 million square feet.

Development activity will continue to remain low until the economics of speculative construction change appreciably. Rising costs continue to outpace rents; at the same time, strong demand for alternative uses like multifamily and mixed-use increases the opportunity costs for building spaces that are entirely retail.

With new retail space deliveries low and construction limited, expanding retailers are snapping up desirable existing space. The average time between when a space is vacated and when a new lease is signed is only 7.1 months. There still exists an imbalance between the quality of available space and what retailers are looking for; much of what is available was built in the 20th century and of unexceptional quality.

So far this year, announced openings total 6,565 locations while announced closures total 5,633 stores. However, openings are skewing towards smaller spaces of less than 10,000 square feet, while there are a preponderance of closures between 10,000 and 50,000 square feet.

These announcements support leasing statistics, which show that over two-thirds of leases signed in the second quarter were for spaces of 2,500 square feet or less, and nearly 90% of leases inked were for spaces under 5,000 square feet. This aligns with the fact that service-based tenants are now leasing more space than goods-based retailers and many fast casual restaurants and QSRs fall under 5,000 square feet.

Spaces that are seeing many closures fall under the junior or big-box category and include the aforementioned retailers as well as Forever 21 and Walgreens. With the difference between announced closings and openings, particularly for the junior box segment (10,000 – 20,000 square feet), vacated boxes may take longer to fill in properties or markets that are not highly desirable.