It sounds alarming: For the first time in 16 quarters, U.S. retailers in the first quarter of this year vacated more space than they leased.
That is one of the key findings of JLL’s recently released Q1 Retail Research Outlook, which looks at the state of the U.S. retail sector during the first quarter of 2025.
Other findings seem troubling, too: Net absorption in the U.S. retail sector sunk to negative 2.7 million square feet in the first quarter, JLL reported. And announced retail closures from 2024 through early 2025 totaled more than 9,900 locations, driven by store closings from struggling retailers such as Party City and Big Lots.
But the retail news isn’t all bad. It’s not even mostly bad. As JLL reported, these retail closures put millions of high-demand retail square footage back into the market for the second quarter of this year and beyond. Naveen Jaggi, president of retail advisory services with JLL, said that this bodes well for the future of the retail market: He expects leasing activity to rise as more companies seek out high-quality retail space that is now hitting the market.
We spoke with Jaggi about JLL’s report and the state of the retail market. Here is what he said.
Why is so much retail space being vacated today? Is it surprising that retailers vacated more space than they leased in the first quarter?
Naveen Jaggi: This was the result of two to three years of build-up from retailers that have been on the watch list of bankruptcies. We have been anticipating these closures for some time. They were nothing that took us by surprise. No one was surprised that Joann closed. Everyone was expecting it. It just seems more shocking when all these expected closures happen at the same time.
Most of the space being left by these retailers will be in high demand. The space will be taken up quickly. The headlines, though, are all about a lot of retail space coming to the market by bankruptcy.
Despite these high-profile bankruptcies, the retail sector is resilient today, right?
Jaggi: Retail has been resilient in part because we have a historic low of new construction activity in this sector. We have had multiple years of lower-than-average retail construction. There is a demand for quality space and markets. You must create supply one way or another. Sometimes it means that you work tenants out of spaces that are old and dying. We are in that environment now. When dying companies put space back on the market, it helps fill the demand by retailers that are growing.
What kind of retailers are performing well today?
Jaggi: Value-oriented daily needs retailers are the biggest players today. Places like Dollar General, Burlington, Dollar Tree are aggressive players. Ross Dress for Less is doing well. Retailers that play in that value daily needs space are taking quality space. We are seeing the U.S. consumer looking for ways to stretch their dollars. More players are in that space to meet that demand from consumers.
There is an entire sector of consumers who look for quality products at stores like T.J. Maxx or DSW at a value price. That is a financial demographic that wasn’t nearly as strong 10 or 15 years ago.
How about experiential retail? Is that still in demand?
Jaggi: Every retailer has realized that providing an experience is important. You must give the consumer a better experience, whether you are talking about a grocery store like grocery like Sprouts or a store like T.J. Maxx. Retailers have to give consumers a reason to come into their stores.
We are seeing more retail that combines food with entertainment, such as Punch Bowl Social in Chicago, which combines food with bocce ball, bowling and other entertainment. There are also places like The Color Factory, which provide an immersive art experience.
The U.S. consumer is attracted to those concepts. But for some of these, the verdict is still out on whether they will have long-term success. What we haven’t seen yet is whether these concepts have 10-year legs. We haven’t seen whether these concepts will reach 10 years or not. The true tale will be in 2030 when we see if these retailers will sign extensions. Are they only good concepts for a short period?
Was there anything in JLL’s first quarter retail report that surprised you?
Jaggi: Nothing took us by surprise. The broader comment I’d make, though, is that we can’t take the U.S. consumer for granted. The U.S. consumers can only take so many negative headlines, so many shocks before they start to retreat a bit. We are in an environment now in which U.S. consumers need some stable news. If consumers feel uneasiness in the marketplace, they will pull back on their spending. The one thing we don’t know is how resilient consumers will be over time in an environment in which you have bad news atop of bad news.
Employment is strong. The labor market feels strong. Wages feel strong. The equities market is back to a healthy level. Yet there is continual talk of whether they’ll be a war or whether we’ll have high tariffs or low tariffs. These things make it hard for consumers to want to shop. Many will look for places where they can find items and not face sticker shock.
Is the threat of tariffs have any impact on retailers?
Jaggi: Tariffs are not slowing retailers yet. But it’s important that we don’t let the headlines distract us from the fact that retail is a long-term outlook business. In the long term, things are good. There is no sense that tariffs will be in place forever. Retailers are saying that it’s important not to overreact to tariffs.
Retailers learned important lessons during the pandemic. They have diversified their supply chains. They can go from Peru to Bangladesh to Vietnam or China to see where pricing is least exposed to tariffs. That is where retailers are focusing their energy.
When you go shopping, look at the products on the shelves. Look at where they are made. Five, six years ago so much of it would have been made in China. If you look today, it is very diversified. Athletic shoes are still predominantly made in China. Other than that, there is a greater diversification of where products are made. I was in Houston a week ago and I saw Izod polo shirts that were made in Peru.
We were at the ICSC Las Vegas recently. I was pleasantly surprised when talking to people to learn that most retailers are not overreacting to tariff talk. Retailers are not changing their behavior now based on a short-term conversation on tariffs. That was a pleasant outcome, not seeing any overreaction.
