CoStar Predicts Stable U.S. Retail Market Through 2026
CoStar, a leading global provider of online real estate marketplaces, property data, and analytics, has released a new forecast indicating that the U.S. retail real estate market is expected to remain relatively balanced through 2026 despite ongoing economic pressures and shifting consumer trends.
According to the latest outlook, retail fundamentals across the United States are projected to remain stable, with vacancy rates expected to increase only modestly before leveling off. The report suggests that while retailers continue to face challenges related to operating costs, consumer spending, and economic uncertainty, the broader retail property market remains resilient compared to previous downturns.
CoStar’s forecast predicts that U.S. retail vacancy rates will peak in the mid-4.4% range over the next year. Analysts expect vacancy levels to edge slightly higher during 2026 before stabilizing and gradually tightening again in 2027. The relatively low vacancy rate reflects continued demand for well-located retail spaces and the limited amount of new retail construction entering the market.
The report also highlights expectations for net absorption, a key metric used to measure the amount of occupied retail space compared to vacated space. CoStar forecasts that net absorption will remain modest during the first half of 2026 as retailers continue adjusting their store portfolios and managing operational challenges.
However, conditions are expected to improve later in the year. During the second half of 2026, quarterly net absorption is projected to average between 4 million and 5 million square feet. This anticipated recovery signals that retailers may regain confidence as economic conditions stabilize and consumer activity improves.
Brandon Svec, National Director of Retail Analytics at CoStar Group, noted that retail move-outs increased during the first quarter of 2026 following a relatively quieter end to 2025. According to Svec, the first quarter is historically one of the weakest periods for retail occupancy, as many retailers reevaluate their locations and make operational adjustments after the holiday season.
This year, however, the increase in move-outs was more pronounced due to several major store closure announcements and a rising number of smaller independent retailers shutting down operations. Svec explained that many “mom-and-pop” businesses continue to face financial pressure from slower consumer spending growth, inflationary pressures, and increasing operating expenses.
Several national retailers have also continued to streamline operations and optimize their physical store footprints. As companies adapt to evolving shopping behaviors and economic conditions, many are focusing on improving efficiency rather than aggressively expanding store counts. This has contributed to a higher-than-normal level of store closures across certain retail categories.
According to CoStar, discretionary retailers and value-oriented chains remain particularly vulnerable in the current environment. Many of these businesses depend heavily on consumer spending from cost-conscious households, which have been impacted by inflation, rising household expenses, and higher borrowing costs. As a result, some retailers are choosing to close underperforming locations and consolidate operations.
Despite these challenges, the overall retail market continues to demonstrate resilience. Analysts point out that the retail sector entered this economic cycle in a stronger position than during previous downturns, supported by years of disciplined development activity and changing consumer preferences favoring convenience-oriented retail formats.
Neighborhood shopping centers, grocery-anchored properties, and mixed-use retail developments have remained relatively stable, benefiting from steady foot traffic and continued consumer demand for essential goods and services. In many markets, limited new supply has also helped landlords maintain occupancy levels and rental pricing stability.
CoStar’s forecast acknowledges that there are both upside and downside risks that could influence market performance over the next two years. However, analysts believe the balance of risk currently leans slightly toward the downside due to broader economic uncertainty.
One of the key concerns highlighted in the report is the potential impact of higher oil and gas prices on consumers. Rising energy costs can reduce disposable income and place additional strain on already cautious households. This could weaken retail sales performance and further pressure retailers operating in discretionary spending categories.
Svec noted that the U.S. consumer remains somewhat fragile, particularly among lower- and middle-income households that continue to manage elevated living expenses. If fuel and energy prices continue to rise, consumer spending could soften further, affecting retail tenant performance and leasing activity.
The report also identified a potential weakening labor market as another downside risk for the retail sector. Slower job growth or rising unemployment could negatively affect household confidence and spending patterns, leading to reduced retail demand and increased business closures.
Additionally, CoStar analysts noted that lower-than-expected population growth could impact long-term retail demand in certain regions. Population growth has traditionally been a major driver of retail expansion, especially in fast-growing suburban and Sun Belt markets. Any slowdown in migration trends or demographic growth could moderate future leasing activity and retail development opportunities.
At the same time, the report suggests there are also potential upside opportunities if economic conditions improve more quickly than expected. Stabilizing inflation, stronger wage growth, and improved consumer confidence could help support retail sales and encourage retailers to expand again in late 2026 and beyond.
Retail landlords and investors are expected to continue focusing on high-performing property types and locations that demonstrate strong consumer traffic and long-term demand. Properties that offer convenience, experiential retail, food and beverage options, and service-oriented tenants are likely to remain more resilient than traditional retail formats facing e-commerce competition.
CoStar’s latest forecast ultimately paints a picture of cautious stability for the U.S. retail real estate market. While certain challenges remain, particularly around consumer spending and economic uncertainty, the sector is expected to avoid significant disruption and maintain relatively balanced conditions through 2026.
With vacancy rates remaining historically low and absorption projected to improve later in the forecast period, the outlook suggests that the retail property market continues to adapt successfully to evolving economic conditions and changing consumer behavior.
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