The data: Strong demand for high-quality retail space pushed average asking rents up 2.4% YoY in Q1 2026 to $24.59 per square foot, per CBRE.

The backdrop supports further increases. Retail availability is just 4.9%, driven by three straight quarters of positive net absorption and historically low levels of new construction.

Location matters. Suburban retail continues to outperform as hybrid work reshapes traffic patterns. Since 2022, suburban availability has fallen 91 basis points, while downtown availability has risen 120 basis points.

Looking ahead, CoStar expects the US retail vacancy rate to peak in the mid-4.4% range this year before stabilizing and tightening again in 2027.

Why is this happening? The obvious answer is that stores still dominate retail. We expect 82.6% of retail sales to happen in-store this year. Most consumers still do at least some of their shopping in physical locations, especially in key categories like groceries (92%), home (87%), and lifestyle (87%), per a McKinsey & Co. survey conducted in collaboration with ICSC.

But it’s not just about transactions. Stores let consumers touch products, handle returns, and interact with staff, while also acting as physical billboards that keep brands top of mind. That’s why even digital-first brands from Meta to Wayfair are investing in brick-and-mortar.

Implications for retailers and brands: Despite the macroeconomic headwinds, demand for physical retail isn’t going away. If anything, it’s concentrating around the best locations.

That raises the stakes for retailers to be more selective about where and when they open stores, and to measure success in ways that assess the full value a location brings to the business. For example, Wayfair has touted how its suburban Chicago store has boosted regional sales, served as a cost-effective customer acquisition channel, and improved the profitability of the retailer’s existing customers.

With rents rising, retailers need to ensure they’re getting more out of every square foot, whether through smarter merchandising, higher-margin categories, or services that keep customers coming back.