Retail Real Estate 2025 Outlook: Resilience of Brick-and-Mortar in a Digital Age
- Alketa
- Jul 9
- 17 min read
Introduction
The narrative of “retail apocalypse” has been proven wrong yet again – brick-and-mortar retail is not only surviving but evolving in innovative ways. In the post-pandemic era, U.S. retail real estate has shown remarkable resilience, with physical stores transforming into experiential hubs that complement the digital shopping boom. This forward-looking analysis examines how traditional retail is reinventing itself through creative concepts and omnichannel integration, supported by data on record-high occupancy and steady growth. We also explore the architectural and design innovations reshaping retail spaces, as physical retail recovers and transforms in the digital age.
Brick-and-Mortar Bounces Back Strong
Far from obsolete, physical retail is enjoying a renaissance. Despite competition from e-commerce, consumer surveys and market data confirm that Americans still love shopping in person. In fact, 97% of Gen Z consumers shop at brick-and-mortar stores, valuing immediate purchase, the ability to see and try products, and the social experience of shopping with friends. Shoppers across all generations “continue to crave connections and experiences outside of the home,” observes a retail executive. This sustained shopper interest has kept retail real estate fundamentals on solid ground:
Record-Low Vacancies: Retail property vacancy rates sit near historic lows. The national retail vacancy held at about 4.1% throughout 2024, the lowest of any commercial real estate sector. By early 2025 it ticked up only slightly to ~4.3% as a few chain closures were rapidly backfilled mmcginvest.com. For context, shopping center occupancy reached a decade-high of 95.6% in 2024. Such tight vacancy levels are well below long-term averages in almost every retail category mmcginvest.com. Even beleaguered enclosed malls, while higher, around 8–9% vacant, are healthier than during past downturns. Retail boasts the lowest vacancy among major property sectors, underscoring the robust demand for physical store space.
Resilient Demand and Sales: Physical retail sales rebounded strongly after the pandemic. Consumer spending remained robust throughout 2024, with holiday sales meeting or exceeding expectations. Most retailers saw year-over-year sales growth, aided by the “halo effect” of integrating online and in-store channels. Shoppers have reaffirmed their love for in-person experiences, disproving gloomy forecasts of retail’s demise. Notably, retailers are generating more revenue per square foot than before – since 2019, core retail sales (excluding autos, gas, e-commerce) are up over 30% while the total occupied retail space grew less than 2%, meaning physical stores are more productive on average mmcginvest.com. This boost in sales per square foot has kept occupancy costs sustainable for retailers even as rents rise modestly mmcginvest.com.
Limited New Supply: One factor behind high occupancies is the constrained supply of new retail space. New construction of retail properties has been minimal – 2024 saw only ~30 million sq. ft delivered (a 26% drop from 2023) and even less is slated for 2025. Rising construction costs, expensive financing, and years of overbuilding prior to 2008 have curbed new development. In fact, over 130 million sq. ft of obsolete retail (mostly dead malls) was demolished in the past five years. With little new supply and many older centers removed, landlords have greater leverage to fill the remaining space and even repurpose large vacancies creatively. The lack of new competition has shifted power to landlords, allowing them to negotiate longer leases and higher rents in desirable locations. Retail expansion plans have slowed mainly because tenants struggle to find quality space in hot markets – a remarkable turn from a decade ago when excess space was the issue.
In short, brick-and-mortar retail remains fundamentally sound. As one industry expert notes, today’s retail is evolving but still "remains strong across the board". After weathering the pandemic and years of e-commerce growth, physical stores have elevated themselves into something “much more creative and experiential” than the cookie-cutter malls of the past. This transformation is key to the sector’s resilience.
Experiential Retail: Reinventing the In-Store Experience
One of the biggest drivers of brick-and-mortar’s revival is the rise of experiential retail. Simply put, stores are no longer mere places to buy things – they are destinations that offer unique experiences you can’t get online. Retailers and landlords have recognized that to lure shoppers away from screens, the physical store must deliver excitement, interaction, and even entertainment.
“Today, people can shop online for most everything,” notes a retail analyst, “so physical stores must provide compelling reasons to visit — brand experience, personalized customer service and unique, immersive experiences”. This philosophy has led to a wave of creative, experience-driven store concepts across the country:
Immersive Flagships: Many brands are transforming flagship stores into immersive showcases. For example, luxury streetwear brand Culture Kings opened a two-story, 25,000 sq. ft. Las Vegas store featuring a 75-foot wall of baseball caps, arcade machines, a half-court basketball area, and even a slushy bar – turning retail into recreation. Similarly, eyewear retailer Warby Parker, born online, found that opening physical showrooms boosted its online sales; their stores offer eye exams and try-ons, exemplifying how digital-native brands use stores to enhance customer engagement.
Retail-Entertainment Hybrids: Developers are filling shopping centers with entertainment and lifestyle attractions. It’s now common to find experiences like indoor golf simulators, live music venues, artisanal food halls, craft breweries, or even pickleball courts integrated alongside stores. These additions make shopping centers fun community hangouts. One prominent example is Fifth + Broadway in Nashville – a downtown mixed-use complex with nearly 240,000 sq. ft. of retail, dining, and cultural attractions including a food hall and multiple music stages. By giving people reasons to linger (beyond just shopping), such centers drive foot traffic and dwell time, which benefits retailers.
In-Store Hospitality: Retailers are also bringing hospitality into stores. High-end home furnishings brand Restoration Hardware (RH) has introduced in-store restaurants, wine bars, and rooftop cafés in its galleries, so that shopping for furniture becomes a leisurely, upscale outing. Likewise, experiential fashion retailer Gentle Monster designs its stores more like art exhibits with avant-garde installations, making the visit an event in itself. These immersive designs blur retail and leisure, encouraging shoppers to spend more time (and money) on-site.
Wellness and Services: Another experiential angle is providing services and activities that draw people in. Bookstores like Barnes & Noble now host author talks and cozy cafés. Some malls are adding fitness centers, spas, and medical clinics – for instance, Simon Property Group brought a Stony Brook Medicine healthcare facility into a New York mall, giving visitors a convenient way to see a doctor during a shopping trip. Pet retailer Petco even revamped its big-box stores into pet wellness centers offering vet clinics and grooming; stores were redesigned with wider aisles and easier navigation to support this service-oriented model. By meeting lifestyle needs, these retailers make themselves indispensable community hubs.
The trend is clear: experiential retail has shifted from a “nice-to-have” to a “must-have” for physical stores. The pandemic actually accelerated this shift – after isolation, consumers crave social and sensory experiences more than ever. Landlords are actively curating experience-driven tenants (think trendy restaurants, interactive museums, escape rooms, etc.) to differentiate their properties and keep customers coming back. As one retail president summed up, “Retail has elevated itself to something much more creative and experiential.” In 2025 and beyond, expect “shopping” to increasingly mean enjoying an experience, not just running an errand.
Omnichannel Integration: Blending Physical and Digital
Rather than being replaced by e-commerce, brick-and-mortar stores have found a new purpose at the heart of omnichannel retail strategies. Retailers now recognize that physical and digital channels work best in tandem, each amplifying the other. Shoppers aren’t choosing between online and in-person – they are using both, often simultaneously, in complementary ways. The result is a blended retail ecosystem where the store is a critical hub for fulfillment, discovery, and customer service.
Key aspects of this physical-digital integration include:
Buy Online, Pick Up In Store (BOPIS): The pandemic popularized curbside pickup and in-store pickup for online orders, and it’s here to stay. Stores have adapted by dedicating space and systems for BOPIS orders. Retail architecture now often includes drive-thru lanes or special parking for pickups, and stockrooms are optimized to handle online order volume. As one design strategist notes, stores need seamless tech integration so that “systems connect to online ordering and inventory” and sales associates can easily manage omnichannel orders. This convenience marries online browsing with offline fulfillment, drawing customers to stores for quick pickups (where they might make additional purchases).
Showrooms and “Right-Sizing”: Many retailers are reconfiguring store layouts to serve as showrooms that display products with less on-site inventory. Rather than huge stockpiles, stores showcase sample items in an appealing, spacious format, and rely on online fulfillment for broader inventory. This “right-sizing” of stores – smaller footprints but higher experience per square foot – enhances the omnichannel experience. For example, apparel and furniture retailers let customers try or see items in person, then ship their chosen color/size to home from a warehouse. This trend has led to less downsizing of store networks than expected, but a change in function: stores as interactive galleries, with back-end integration to online stock. It’s been a boon for design firms creating branded, unique environments that bridge online and offline shopping.
Unified Commerce & Tech: Retailers are investing in technology to merge channels. Mobile apps guide shoppers in store, online catalogs reflect local store inventory, and social media drives people to pop-up events at stores. Mall owners are even launching their own e-commerce marketplaces (e.g. Simon’s “ShopSimon” online platform) to complement their physical malls. The goal is a unified customer journey – you might discover a product on Instagram, check it out in a store, and purchase via app for home delivery. Physical stores play a crucial role by offering immediacy and personal assistance that pure e-commerce lacks. As a Cushman & Wakefield retail chief explained, “omnichannel strategies leverage physical stores to drive online sales and vice versa”. A great store visit can boost a brand’s online business, and vice versa, creating a virtuous cycle.
Last-Mile Fulfillment Hubs: Stores are doubling as distribution points. With the push for same-day delivery, having inventory near the customer is key – and what’s closer than your local shopping center? Many retailers now ship online orders from their store stock or offer local delivery, effectively turning stores into mini-fulfillment centers. Some big-box chains have even added automated pickup lockers and micro-fulfillment facilities in backrooms to speed up order handling. This not only improves e-commerce logistics but also drives foot traffic as customers come in for pickups and perhaps shop more.
In essence, the physical store has become the linchpin of omnichannel retail. It’s a showroom, a fulfillment center, a marketing tool, and a customer service hub all in one. Retailers who seamlessly integrate these roles – providing a frictionless experience whether a customer is on a smartphone or in the aisle – are thriving. Those that invested in both online infrastructure and a strong store presence have emerged as leaders in the post-2020 retail landscape. By embracing technology and the human touch, brick-and-mortar retailers are carving out a durable role in the digital age.
Market Trends: Vacancy, Rent Growth and Stability
The financial outlook for retail real estate in 2025 is cautiously optimistic. With vacancies at record lows and demand steady, the sector’s fundamentals are solid, but growth is expected to be modest rather than explosive. Here’s a look at the key market indicators and forecasts:
Vacancy & Absorption: As noted, U.S. retail vacancy is hovering around historic lows (~4%), reflecting a tight market. Any new vacancies from retailer bankruptcies (like department store closures) are being backfilled at an unprecedented pace – one analysis found that even after a spike in Q1 2025 store closures, most quality spaces were re-leased within months, the fastest turnaround in 15 years mmcginvest.com. Net absorption (the net change in occupied space) slowed in 2024 compared to the post-pandemic rush, mainly due to limited new supply. It’s forecast to remain slightly positive in 2025, even as leasing stabilizes to a more sustainable pace. In other words, demand for space still exceeds supply, but both metrics are leveling off to normal patterns. Crucially, vacancy rates are expected to stay steady through 2025. The main caveat is certain segments – for instance, the closure of thousands of pharmacy and discount stores could push up vacancy in those niches. However, stronger formats like grocery-anchored centers and single-tenant retail continue to see near-full occupancy, balancing the overall market.
Rent Growth: After the rapid rent spikes of 2021–2022 during the frenzied recovery, retail rent growth has moderated to a healthy, modest rate. Nationally, asking rents rose roughly 1.9% year-over-year as of mid-2025, in line with the pre-pandemic historical average of 1–2% annual growth mmcginvest.com. For 2025, analysts project rent increases in the 2% range – Colliers forecasts about a 2% rise in market rents, extending 2024’s record-high rent levels. This tempered growth reflects a plateau in consumer spending and normalization of demand after the post-lockdown surge mmcginvest.com. Retailers simply have less ability (or need) to absorb big rent hikes now that consumption has stabilized and competition from e-commerce has resumed mmcginvest.com. Consumer spending is expected to remain stable (neither booming nor crashing) as we head through 2025, given high interest rates and caution around inflation. Accordingly, landlords are securing only modest rent bumps, but importantly, rent growth is still positive – a testament to the sector’s strength. In many top retail markets (especially Sunbelt metros with population growth), rents are rising faster than the national average, whereas a few slow-growth areas see flat rents mmcginvest.com. Overall, rent trends are steady and sustainable, not skyrocketing – a sign of a mature recovery.
Retail Investment & Value: Investors have noticed retail’s resilience. After a period of pessimism in 2020–2021, institutional interest in retail real estate picked up in 2024 and continues into 2025. With other property types like offices struggling, retail (especially essential retail like grocery-anchored centers) is viewed as a stable bet. Cap rates (investment yields) for top-tier retail assets have largely flattened out after rising in 2022–23 mmcginvest.com. Values for well-located shopping centers and net-leased stores have held firm or even increased slightly, supported by those low vacancies and steady rents mmcginvest.com. In essence, the combination of minimal new supply, low vacancy, and solid tenant demand is preventing any erosion of retail property values mmcginvest.com. In fact, many retailers are expanding again (albeit cautiously), and private investors are actively purchasing shopping centers, indicating confidence in the sector’s stability.
Consumer Environment: On the shopper side, the environment is mixed but generally stable. High employment levels and moderating inflation have kept consumers spending, though they are more selective and value-conscious in 2025. Rising costs of living and interest rates mean people are prioritizing necessities and looking for deals – hence the success of off-price retailers and discount grocers. Discretionary spending is a bit softer as households feel pinched. But importantly, consumer sentiment is nowhere near recessionary collapse; many forecasters who predicted a downturn were surprised by continued retail resilience. Holiday seasons in 2024 matched expectations, and 2025 is expected to see moderate growth in retail sales rather than any major pullback. This aligns with the “new normal” of steady-but-slower growth. Retailers are responding by highlighting value (sales, promotions) and bundling experiences to entice cautious shoppers. All told, consumer spending is stabilizing at a healthy level, which supports the modest rent increases and ongoing demand for retail space.
In summary, the retail real estate market in 2025 looks balanced and resilient. Low vacancies and limited supply give landlords confidence, while stable consumer demand allows retailers to plan for the future without the rollercoaster of the past few years. The outlook is for continued gradual growth – a welcome scenario that points to the sector’s long-term durability.
Architectural Innovations and the Future of Retail Spaces
The renaissance of brick-and-mortar is not only about new business strategies – it’s also being driven by innovations in architecture and design. The physical form of retail real estate is changing to support experiential and omnichannel trends. Developers, architects, and planners are reimagining how shopping centers and stores should look, feel, and function in this new era. Some key architectural and development trends shaping retail include:
Mixed-Use Developments: The lines between retail, entertainment, office, and residential spaces are blurring. Instead of isolated shopping centers, the trend is toward mixed-use “live-work-play” destinations. For example, many aging malls are being redeveloped into mini neighborhoods that incorporate apartments, hotels, offices, and restaurants alongside retail. A leading architect notes that the “mixed-use trend is expanding to incorporate industrial, retail, entertainment, residential into one cohesive development.” In Utah, the Mountain View Village project was designed to feel like an organic downtown, with a cinema, dozens of dining options, offices, and shops all integrated in a walkable layout. Similarly, across the U.S., traditional malls are “turning into communities” offering gyms, grocery stores, medical offices, and more – essentially becoming town centers. These mixed-use environments not only make better use of land, but also ensure a constant flow of people at different times of day, enhancing safety and business vibrancy.
Adaptive Reuse and Redevelopment: Given the oversupply of retail space in past decades, many communities are repurposing older retail properties. Architects are finding creative ways to adapt empty big-box stores and malls into new uses. We see retail parks adding non-traditional tenants like medical clinics, educational facilities, libraries, co-working spaces, even churches. This “medtail” trend (medical + retail) is growing, with firms like CallisonRTKL helping healthcare providers open offices inside shopping centers. Conversions come with design challenges – older buildings may need upgraded plumbing, ventilation, and structural reinforcements to handle these new uses. But the payoff is a diversified tenant mix that can make a center more resilient. For instance, replacing a vacant department store with a grocery market, a gym, and a family entertainment center brings a fresh crowd of visitors. Landlords are far more receptive to non-retail tenants now, whereas in the past they hesitated. By embracing adaptive reuse, developers are preventing blight and giving retail sites a second life.
Flexible Store Design: Retail architects are also designing more flexible and modular store spaces to accommodate changing needs. In an era of rapid shifts (think popup stores, seasonal concepts, or even pandemics that require distancing), the ability to reconfigure a store is crucial. Architects report that clients want spaces that “can contract and expand based on tenant needs,” enabled by movable fixtures, demountable partitions, and multi-purpose layouts. Retailers are also building with an eye on the future – asking “What might this space need to become in 5 or 10 years?”. This could mean using lightweight materials that are easier to remodel, or choosing locations with extra parking/drive-thru space anticipating more click-and-collect activity. One observable trend is showroom-like interiors (as mentioned, less stock, more display) which create open, flexible floor plans. Another is incorporating community space – some new stores have lounge areas or event space that can flex between retail and social use.
Enhanced Amenities and Placemaking: To support experiential retail, developers are investing heavily in placemaking and amenities that create a pleasant atmosphere. Landscaping and outdoor space design are now priorities – the Mountain View Village, for instance, planted thousands of plants and 1,700 trees to give an inviting, parklike feel. Open-air plazas, seating areas, children’s play zones, and art installations are common in revamped shopping centers. Malls are adding outdoor lifestyle districts and food streets to capitalize on shoppers’ preference for fresh-air environments post-COVID. Inside stores, thoughtful design elements (comfortable seating, Instagrammable decor, interactive digital screens) are used to encourage lingering and engagement. Even sectors like banking and auto sales are adding lounge areas to make customers feel at home while they browse products or wait for. All these design touches recognize that atmosphere matters – a well-designed space can turn a routine shopping trip into a memorable outing.
Infrastructure for Omnichannel: As noted, omnichannel retail requires some physical upgrades. Architects and engineers are tweaking designs to include things like package pickup centers, more loading bays for online order logistics, stronger Wi-Fi and electrical capacity for tech, and expanded drive-thru lanes. Quick-service restaurants, for example, are building more drive-thru windows and even designing mobile-app pickup only lanes to serve customers who order from their phones. Retailers are also investing in smart building tech – sensors, IoT devices, and data analytics – to monitor store traffic and optimize layouts. Modern stores often have interactive digital signage that can be updated instantly to match online promotions. Even parking lots are being designed with e-commerce in mind: designated curbside pickup spots, ample room for curbside queues, and clear signage directing online customers. These may seem like small tweaks, but they are crucial for bridging the gap between digital convenience and physical accessibility.
Incorporating these architectural innovations is vital for retail real estate to remain relevant. Developers like Simon Property Group are spending billions to overhaul properties – adding mixed-use components, modernizing aesthetics, and creating multi-functional community spaces. The physical retail spaces of 2025 are more versatile, engaging, and connected than ever before. As one retail architect put it, “we continue to push innovative design solutions for flexible spaces,” because adaptability is the future. This convergence of good design and smart strategy is ensuring that brick-and-mortar retail not only survives in the digital age, but thrives as a key part of urban and suburban life.
Outlook: Continued Transformation in a Digital Age
Looking ahead, the outlook for retail real estate in 2025 and beyond is one of steady evolution rather than drastic upheaval. Brick-and-mortar stores have shown they can co-exist with e-commerce by reinventing themselves. The sector’s recovery from the pandemic slump has been strong, and its transformation is ongoing. A few expectations for the near future:
Physical Retail Remains Indispensable: The store’s role as the heart of omnichannel retail will only deepen. Retailers will keep investing in their physical footprints as crucial touchpoints for experience, fulfillment, and brand building. We can expect to see more online-first brands opening showrooms and more traditional retailers refining their in-person services. The fact that e-commerce, while significant, still accounts for only ~16% of U.S. retail sales (projected to reach ~23% by 2027) means the majority of retail transactions will continue to happen in stores. In-person shopping isn’t going away – it’s getting smarter and more experiential.
Moderate Growth Built on Solid Fundamentals: Economists foresee modest but positive growth for retail real estate. With limited new development in the pipeline and consumer spending steady, the sector is unlikely to overheat or crash. Vacancies should stay low as any vacated spaces are quickly repurposed. Rent growth will likely stay in the low single digits annually, which is sustainable for retailers and still attractive for property owners. In essence, retail real estate is entering a period of equilibrium – a welcome change from the volatile swings of the past decade.
Continued Emphasis on Experience: The experiential trend is here for the long haul. Retailers and landlords who provide the best experiences will capture disproportionate share of foot traffic. We’ll see constant innovation – new store concepts, immersive technologies (augmented reality in stores, for example), rotating pop-up installations, and greater personalization. Shopping centers will continue evolving into community hubs, hosting events like farmers markets, live concerts, or fitness classes to draw crowds. The marriage of retail and entertainment will produce ever more creative hybrids.
Adaptive Reuse and Urban Revitalization: The push to redevelop and re-use retail space will persist. As some older formats struggle (e.g. poorly located malls), they will become targets for redevelopment into mixed-use assets or distribution hubs. This is a positive trend, preventing decay and giving communities new amenities. In suburban areas, successful malls will keep adding non-retail components (housing, offices, healthcare) to remain destinations. In city centers, ground-floor retail may increasingly house services and experiential venues rather than just apparel stores, reflecting changing consumer behavior. Flexibility will be a competitive advantage – both in design and in leasing strategies.
Technology’s Role: Finally, technology will further blend with physical retail. From cashierless checkout to AI-driven store analytics and personalized mobile deals triggered by in-store beacons, the tech-enabled store of the future will continue to evolve. Importantly, these innovations will aim to enhance the human aspect of shopping, not eliminate it. The retailers that thrive will be those that use technology to augment the customer experience – making it more convenient, engaging, and data-informed – while still providing the tangible, face-to-face qualities that online shopping lacks.
Overall, the U.S. retail real estate sector in 2025 is resilient and adapting. Brick-and-mortar retail has proven its staying power by transforming itself in the face of digital disruption. By embracing experiential concepts, integrating seamlessly with online channels, and reimagining the use of physical space, retail landlords and brands have charted a sustainable path forward. The shopping environments being created today – whether a vibrant mixed-use town center or an interactive flagship store – underscore that the future of retail is not an “either/or” choice between online and offline, but a fusion of both. As consumer habits continue to evolve, one thing is certain: physical stores will continue to play a central role in the retail ecosystem, offering the immediacy, immersion, and community connection that no digital platform can fully replicate. The digital age has not killed brick-and-mortar retail; instead, it has propelled it into a new era of creativity, agility, and enduring relevance in our cities and lives.
Sources:
Colliers – 2025 Retail Outlook (Nicole Larson, Jan 2025): U.S. retail vacancy steady at 4.1% in 2024; shopping center occupancy at 95.6%, rent growth forecast ~2% in 2025.
REsimpli – Commercial Real Estate Stats 2025: Retail properties have the lowest vacancy of any sector at ~4.1%, while mall vacancies average 8.6%.
NAIOP (Commercial Real Estate Dev. Assoc.) – Experiential Retail Revival (Summer 2025): Brick-and-mortar retail remains strong by evolving into creative, experiential formats. Gen Z and other shoppers still flock to stores for immediate gratification and social connectiong. Physical stores are key to omnichannel, as exemplified by Warby Parker and others.
Expansion Solutions Magazine – Retail Real Estate 2024 Review & 2025 Outlook (Apr 2025): 2024 saw historic low vacancies (~4-5%) and robust consumer spending, defying recession fears . Limited new supply and high demand let landlords raise rents 20–40% on prime re-leased space. Mixed-use developments integrating retail with residential/entertainment are expected to drive growth.
MMCG Investment – Retail Benchmarks 2025: Retail vacancy ~4.3% in early 2025 (near record low); tight market gives landlords leverage for modest rent increases mmcginvest.com. Rent growth ~1.9% YoY, down from >4% in 2022 as consumer spending stabilizes, but sales per sq. ft. are up, supporting rents mmcginvest.com.
Building Design + Construction – Top Retail Design Trends 2023-24: Retail design is embracing mixed-use and flexible spaces. Traditional malls are being redeveloped into communities with apartments, offices, entertainment, etc. Stores are accommodating BOPIS (online pickup) and shifting to showroom-style formats for an enhanced omnichannel experience. Architects highlight adaptive reuse, from adding lounges in auto dealerships to converting retail space for medical or fitness uses.
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