Retail leasing activity remains solid

Consumer spending has slowed from abnormally strong post-pandemic rates but continues to be resilient across most major markets, supported by healthy labor markets, rising real wages and increasing international tourism. While conditions vary, retail spending in many mature markets is expected to increase in 2025 as interest rates fall and consumer confidence rebuilds.

The prime end of the market continues to perform well across most key retail markets globally, with significant leasing demand. In the U.S., vacancy for top-quality locations is near record lows with tenants leasing up available space in record times, while in Europe demand is broadening into dominant regional markets. Retailer activity also remains strong in high-growth and tourism-oriented markets across Asia Pacific. With a limited supply of space in the best locations, prime rents are anticipated to gradually edge upwards in many markets globally over the remainder of the year. Rental growth is forecast to widen further through 2025 in line with strengthening consumer demand.

Future trends: Robust demand and limited development supporting rental growth for top locations

Outlook for 2025: Global retail sales growth is set to pick up in many major markets over the next 12 months, supported by rising real wages as inflation and interest rates decline, as well as sustained increases in international travel. Leasing demand is set to remain robust for high-quality space and locations as many retailers remain in expansionary mode to diversify and access growth. Limited available space in mature markets will hold back absorption levels, with space coming onto the market providing options and leased up quickly as rental growth selectively broadens.

Long-term: Global consumer spending is forecast to increase at a faster pace over the next five years as the impacts of the inflationary spike recede and consumer confidence rebuilds. Fastest growth is set to be in discretionary categories including health and recreation, with food and experiential retailers remaining in growth mode. The development pipeline in many mature markets remains limited, intensifying competition and pushing rental levels higher for the best locations. Technology – including in-store automation, AI-assisted marketing and analytics, and new delivery methods – will be increasingly in focus for retailers and landlords to provide a more differentiated experience, improve customer targeting and conversion or reduce operating costs.