The U.S. retail real estate sector in 2024 navigated a year of transformation shaped by persistent inflation, evolving consumer habits, and technological advancements. While steady gains in e-commerce and experiential shopping provided opportunities, rising operational costs, economic uncertainty, and shifting spending preferences posed significant challenges. As we move into 2025, these same forces are poised to evolve further, presenting both new opportunities and continued headwinds for the industry.
Economic activity increased ‘slightly to moderately’ across the U.S. in late November and December, driven by strong holiday sales. December retail sales came in slightly below expectations, rising 0.4% compared to the projected 0.5%, but the overall data points to a healthy holiday season. As Jeffrey Roach, chief economist for LPL Financial, noted, “Consumers exhibit solid momentum exiting 2024, with incomes remaining supportive of current spending patterns,” contributing to annual growth of 4%, which exceeded forecasts.
The 2024 holiday retail season reflected steady growth across various categories, showcasing shifts in consumer behavior and spending patterns. In-store sales grew by 2.7% year-over-year, while online sales surged by 6.7%, according to Mastercard SpendingPulse. Electronics saw a notable 4.2% growth rate, improving from 2.8% in the previous year, while clothing and accessories experienced a robust 5% increase, doubling last year’s 2.4% rise. Building materials rebounded significantly, with sales climbing 4.7%, a sharp contrast to the -3.9% decline recorded last year, highlighting renewed consumer interest in home improvement projects.
Seven Trends Defining Retail in 2025
As the retail industry continues to adapt to shifting consumer behaviors, economic pressures, and technological advancements, the lessons of 2024 provide valuable insights into what lies ahead. From the resurgence of in-person shopping to the growing importance of seamless online experiences, these developments reveal the direction the sector is headed. Here are seven key trends from the past year that not only defined 2024 but are poised to shape the retail landscape in 2025 and beyond.
- Investor Interest in Resilient Retail Properties
The resurgence of investor interest in retail properties, particularly in open-air neighborhood shopping centers, was a key takeaway of 2024 that will continue into ‘25. Foot traffic to grocery stores grew 12% in the third quarter of 2024 compared to the Q3 2019, based on data from Green Street. These centers, often anchored by grocery stores, have seen rising occupancy rates, attracting steady foot traffic that benefits surrounding small businesses such as coffee shops and medical centers—services that online retailers find challenging to replicate. CBRE predicts that more than $10 billion in U.S. open-air retail portfolios will be bought and sold in 2025.
This growing momentum is further evidenced by recent high-profile partnerships and acquisitions in the open-air retail sector. The partnership between Bain Capital Real Estate and 11North Partners formed in April 2024 to acquire and operate open-air retail centers across North America underscores the growing interest in the sector. This collaboration targets assets with necessity-based tenants, such as grocery stores, which attract consistent foot traffic and are less vulnerable to e-commerce disruption. Similarly, in November 2024, Blackstone entered advanced talks to acquire ROIC, a major owner of U.S. shopping centers, in a deal valued at $3.4 billion, including debt. ROIC’s portfolio of 93 grocery-anchored shopping centers reflects Blackstone’s strategic focus on high-traffic retail assets with resilient demand.
- Store Closures Highlight Industry Challenges
In 2024, investors witnessed several major retailers file for bankruptcy, undergo restructuring, and close brick-and-mortar stores, highlighting the persistent challenges traditional retailers face in the digital era. Macy’s announced they will shutter 150 underperforming stores over three years. In July, Big Lots faced mounting financial pressures, filing for Chapter 11 bankruptcy in September and announcing the closure of all 963 remaining stores by December. December also brought the news that Party City filed for Chapter 11 bankruptcy for the second time in two years and announced plans to wind down operations, closing around 700 U.S. stores.
Analysts predict that as many as 45,000 retail locations could close in the next five years, driven by e-commerce growth and changing consumer preferences especially in apparel, consumer electronics and home furnishings. Many of these locations could be redesigned to become fulfillment and distribution centers to serve online shopping.
- Mobile Shopping Surge and AI
E-commerce continued its upward trajectory in 2024, with holiday online sales growing 6.7% year-over-year to $241.4 billion. Notably, 54.5% of transactions were completed on mobile devices, up from 51.1% in 2023, according to Adobe. This shift highlights how consumers increasingly rely on smartphones for convenience and accessibility.
The rise of artificial intelligence (AI), including augmented reality (AR), in retail played a significant role in this trend. In 2025, retailers will increasingly rely on AI-powered tools like chatbots and personalized recommendations to enhance mobile shopping experiences, create seamless shopping experiences, and drive consumer engagement.
The adoption of AI and AR-based technologies on e-commerce sites and apps as well as in physical stores has the potential to revolutionize the shopping experience. Brands can leverage intelligent dressing rooms, smart mirrors, and 3D body scanning to enhance customer confidence in product fit, reducing returns and increasing average purchase sizes. In e-commerce, AI offers personalized sizing recommendations based on past orders and customer feedback, while AR allows shoppers to visualize larger items, such as furniture, within their own spaces for more informed purchasing decisions.
Target has invested significantly in AI, launching a personalized gift finder powered by generative AI on its app and website, alongside experimenting with a chatbot shopping assistant. Nordstrom has refreshed its app with AI-driven trend reports and stylist insights, while also enhancing the search experience and offering personalized recommendations, bringing the experience of in-person shopping onto mobile devices.
- The Reinvigorated Evolution of Brick-and-Mortar Retail into Experiential Retail
The move to experiential retail was halted by the pandemic only to morph into a more seamless omnichannel shopping experience as consumers increasingly rely on a blend of online, in-store, and mobile channels. Data from a 2024 Bazaarvoice survey shows that 80% of shoppers use a mix of online and in-store shopping, with only 13% exclusively online and 7% solely in-store. Webrooming, where consumers research products online before buying in-store, is a common behavior for over 75% of shoppers, especially in categories like electronics, apparel, and groceries. Showrooming, where shoppers browse in-store but purchase online, is practiced by 59% of consumers, driven by competitive online pricing and the convenience of home delivery. Social commerce is also reshaping the retail landscape, with platforms like TikTok Shop—whose future hangs in the balance of a probable shutdown in the U.S.—generating $15-16 billion in U.S. sales in 2024. User-generated content and live demos are increasingly influencing purchase decisions, showing how digital and physical channels are converging to meet consumer expectations.
- Tight Supply to Drive up Asking Rents and Competition
Retail space availability is expected to remain tight in 2025. While interest rates are anticipated to decline slightly according to the Fed’s meeting in December, the persistently high cost of capital will continue to make financing new developments and expansions difficult, particularly in markets where rental rates do not adequately offset construction and financing expenses. This financial constraint will limit new retail projects and exacerbate the already constrained supply of retail space.
With minimal new space set for delivery in 2025, the retail availability rate is projected to stay at historic lows, driving up asking rents, according to CBRE’s Retail Real Estate Market Outlook. However, store closures could inject some much-needed availability into the market. Prime locations and spaces within open-air strip malls and power centers —large retail complexes anchored by big-box stores like home improvement retailers or warehouse clubs—are likely to become highly desirable among tenants seeking to capitalize on foot traffic. According to Coresight, 2024 was notable as the first time in three years that retail store closures in the U.S. outnumbered openings. This trend, if it continues, could reduce competition among tenants and create more opportunities to secure prime spaces as backfill options become increasingly available.
Retailers with stable operations will fiercely compete for these well-positioned spaces, often committing to longer lease terms to secure their presence and mitigate future supply uncertainties. CBRE predicts demand for premium retail locations will be robust, as evidenced by continued leasing activity in grocery-anchored centers and high-traffic lifestyle centers.
- The Impact of Higher-for-Longer Interest Rates and Tariffs
Economic uncertainty in 2024 pushed consumers toward value-focused retailers like Walmart, which reported a 5.5% consolidated revenue increase in Q3, driven by grocery and essentials. Target saw mixed results, with weaker general merchandise sales offset by stronger performance in grocery.
In 2025, discount retailers and warehouse clubs will likely continue expanding as consumers prioritize affordability as inflation persists, with prices now about 22% higher than they were before the pandemic-led recession in February 2020, according to Bankrate.
The potential for tariffs on imported goods under the incoming Trump administration adds further uncertainty for retailers. Best Buy highlighted during its Q3 earnings call that most consumer electronics are imported, meaning tariffs would likely lead to higher prices. On the other hand, Home Depot stated that its sourcing strategy and prior experience with trade duties should insulate it from significant tariff impacts. Lowe’s, however, acknowledged greater vulnerability, with 40% of its assortment sourced from abroad. As consumers adapt to inflationary pressures, rising competition from international discount brands like Shein and Temu—whose parent company PDD Holdings reported $35 billion in revenues in 2023—further complicates the retail landscape.
- The Evolving Strategy of Luxury Brands
As 2024 ended, the luxury retail sector showed its resilience and strategic evolution, particularly in New York City’s prime shopping districts. Major brands like Kering (owner of Gucci and Balenciaga) and Prada shifted from leasing to owning flagship properties to better control occupancy costs amid rising retail rents and limited space availability. Kering purchased the property at 717 Fifth Avenue for $963 million—more than triple its estimated value—while Prada acquired its flagship store’s building for $835 million. This trend reflects luxury brands’ commitment to securing permanent footprints on highly sought-after streets, positioning themselves for long-term stability and growth. Patrick Smith, vice chairman of JLL’s New York retail brokerage, emphasized that such moves are strategic for successful brands aiming to mitigate rising costs and ensure control over their prime retail spaces.
Looking ahead to 2025, this trend of luxury retailers owning rather than leasing real estate is expected to grow. Despite economic uncertainty and a cost-conscious consumer, the luxury sector remains resilient, with brands doubling down on immersive, in-store experiences and innovative partnerships, including collaborations with the hospitality industry, to enhance their customer offerings. As JLL reported in September 2024, the combination of economic resilience and strategic real estate acquisitions will solidify luxury retailers’ dominance in the evolving retail landscape, setting the stage for continued expansion and innovation in 2025.
Will 2024 Trends Dominate 2025, or Will the Year Bring New Surprises?
The retail industry’s adaptability in 2024 demonstrated its capacity to navigate challenges, from shifting consumer expectations to economic pressures. In 2025 retailers will face an evolving landscape shaped by economic pressures, technological advancements, heightened demand for personalized experiences, and the pressing need to align with consumers’ growing focus on value.
While the future may hold surprises, key trends are already emerging. In this dynamic environment, staying attuned to market shifts and consumer preferences will be the cornerstone of retail success in 2025.
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
