Five Forces Shaping the Future of Retail

The U.S. retail market is evolving amid demographic shifts, technology’s growing importance to consumer behavior and COVID-19’s lasting impact on where people live, work and shop. As discussed in CBRE’s Shaping Tomorrow’s Cities report, the impact of these trends varies significantly across cities depending on their economic and demographic characteristics and urban composition. This report analyzes five forces shaping retail’s future across U.S. markets:

1. Given overall healthy household balance sheets and our expectation of continued economic growth, we believe consumer spending has upside potential in 2025, led by Gen Zers and millennials, who expect to increase their spending the most and take on more spending debt than older generations. Millennials and Gen Zers are more interested in combining shopping with dining and place greater importance on the sustainability of brands and products than Gen Xers and baby boomers.
2. The U.S. is underretailed by 200 million sq. ft., or approximately 5% of total retail stock. The need for additional supply is greatest in Austin, Orlando and Nashville.
3. Retail in Vibrant Mixed-Use¹  districts is thriving, with low availability rates, well-above-average rents and significant development activity compared with the other district types. Retailers and investors can benefit from targeting locations within and adjacent to these dynamic areas.
4. Consumers are gravitating to dense retail clusters in both cities and suburbs, a trend that we expect to continue. High-street foot traffic decreased the most among the major retail formats during COVID but has bounced back the strongest since 2022. The high-street retail rent compound annual growth rate (CAGR) of 3% outperformed the broader market CAGR of 2.1% during that same time, with the largest spreads in Dallas, Los Angeles and Manhattan. Similarly, the rent CAGR of 2.6% for dense suburban clusters outperformed the broader market.
5. Of the 28 retail employment subsectors, we identified 19 as highly susceptible to e-commerce, especially bookstores. High-growth Sun Belt markets—including Austin, Houston and Nashville—are the most resistant to e-commerce. Understanding e-commerce’s effect on each retail subsector is vital to accurately assessing relative resilience of a center's tenant mix, renewal probabilities, default mix and other underwriting considerations.

Consumers Remain Resilient, Especially Millennials and Gen Zers

The U.S. consumer remains resilient amid a gradually slowing economy, with quarterly GDP growth decelerating from 3.6% in Q4 2021 to 1.4% in Q2 2024. Despite a surge of post-pandemic “revenge spending,” consumers continue to save. The Bureau of Economic Analysis recently revised the Q2 2024 personal savings upward by nearly two percentage points to 5.2%. The monthly average savings rate of 4.9% since 2023 is nearly on par with the long-run, pre-pandemic average of 5.2% from 2000-2019. Average income after taxes exceeded average expenditures for most age cohorts between 2020 and 2023—with especially large differences among 25-64-year-olds, whose expenditures are higher than the under-25 and over-65-year-old populations. Given healthy household balance sheets and our expectation of continued economic growth (albeit at a slower pace than emerging from the pandemic), we believe consumer spending has upside potential in 2025.

Income Exceeded Expenditures for Nearly All Age Groups Since 2020

Figure 1: Income After Taxes Less Total Average Expenditures by Age

Gen Zers and millennials in particular are expected to fuel consumer spending in 2025. We partnered with Morning Consult to survey 2,200 U.S. consumers, and Gen Zers and millennials emerged as the most optimistic about their current household finances and spending expectations. They also are most likely to take on debt to spend in the near term, with 36% of Gen Zers and 39% of millennials “very likely” or “somewhat likely” to do so, compared with 31% of Gen Xers and 20% of baby boomers.

Gen Z, Millennials Most Optimistic Regarding Spending in 2025

Figure 2: Household Spending Expectations One Year From Now by Generation

Malls, Sustainable Retail and Locations Combining Shopping and Food & Beverage Options Will Benefit

The survey reveals some positive trends for brick-and-mortar retail, especially from the digital native generations. Gen Zers and millennials increased their frequency of in-store shopping the most over the past year, with 24% of Gen Z and 31% of millennials having “greatly increased” or “somewhat increased” their frequency, compared with 17% of Gen Xers and 12% of baby boomers. Also, 60% of Gen Z and 53% of millennials shopped at a shopping mall or center over the past three months, higher than Gen X (48%) and baby boomers (43%). Shopping malls/centers were the favored location for in-person shopping among all generations, especially Gen Z (59%), followed by baby boomers/Gen Xers (46%) and millennials (44%). Strip malls were the favored in-store shopping location for a slightly higher share of baby boomers and Gen Xers (19%) compared with the younger generations.

The survey results reflect the greater importance of sustainability in the retail experience for younger consumers compared with older generations. Gen Zers and millennials were far more likely to have made consumer research and shopping choices based on sustainability factors than Gen Xers and baby boomers, underscoring the importance of retailers providing information and products that address these younger consumers’ concerns.

Sustainability Is Much More Important to Gen Z and Millennials

Figure 3: Product/Brand Sustainability Concerns by Generation

Younger shoppers also indicate a greater interest in combining eating and drinking with shopping: 33% of Gen Zers and 30% of millennials want to eat when they go shopping and consider it an important aspect of their outing, while just 14% of Gen Zers and 13% of millennials do not like to eat or drink on shopping excursions.

The financial health of U.S. consumers and the optimism of Gen Z and millennials in particular bodes well for retail spending in the year ahead. Retailers and shopping center owners that respond to the preferences of younger shoppers, such as addressing sustainability concerns and offering a tenant mix that includes food and beverage offerings, will be well positioned to benefit from this growth.

Retail development slowed precipitously over the past 15 years, with annual completions² in 2021-2023 down by more than 80% from the mid-2000s. Combined with steady consumer and retailer demand, the national availability rate fell to 4.7% in Q2 2024, equaling the lowest rate since at least 2005. As a result of these trends, the U.S. is now underretailed by 200 million sq. ft., or approximately 5% of total stock.³

The Developing Destinations of Austin, Orlando and Nashville are the most undersupplied markets, as retail development has failed to keep pace with robust population growth. All three markets have availability rates of 2%-3% due to this outsized demand. Super Cities New York (Manhattan) and Los Angeles, as well as Chicago, are relatively balanced if not slightly oversupplied relative to population growth. These markets have the highest availability rates, though all are still healthy by historical standards. This analysis indicates a potential opportunity for investors and developers to acquire and build retail in the most undersupplied markets, as well as to find targeted opportunities within balanced metros that have clusters where population growth has outpaced new supply.

Strongest Rent Growth, Lowest Availability Rates in Undersupplied Sprawling Darlings and Developing Destinations

Figure 4: Retail Rent 5-Year CAGR vs. Stock Per Capita by Market

Figure 5: Retail Availability Rate by Stock Per Capita by Market

The retail mix also may need to change in different markets going forward due to demographic shifts. For example, the share of the population aged 60+ is projected to increase the most in the Super Cities and many of the Mixed Majors over the next eight years, and many of those markets also are forecast to lose the largest shares of young adult population (aged 20-34). This likely will require a shift toward more senior-oriented retail to meet the needs of this growing share of the population. Conversely, all the fastest-growing markets for share of young-adult population are Sprawling Darlings and Developing Destinations, indicating a need for more retail targeted to this age cohort. Phoenix and Orlando are among the top markets for projected increase in share of both young adults and older people and thus will require a retail mix that meets the needs of both groups. Retailers and investors will benefit from examining the impact of these long-term demographic trends on the types of retail and shopping centers that will be required to meet future consumer demand.

In Shaping Tomorrow’s Cities, we found that office properties located in Vibrant Mixed-Use districts outperformed, demonstrating that office performance benefits from a mix of adjacent commercial uses. Similarly, retail located in Vibrant Mixed-Use districts has thrived. Retail rents in Vibrant Mixed-Use districts are significantly higher than in the other district types, including a 74% premium over retail rents in Prime Business districts and 110% rental premium over retail in Non-Prime Business districts. Also, the availability rate in Vibrant Mixed-Use districts compressed over the past 10 years despite having the highest share of new supply as a percentage of existing inventory (17%) among the district types.

Retail in office-centric districts also has performed well over the past decade and post-COVID despite an increase in hybrid work. Among the district types, availability rates for retail located in Prime and Non-Prime Business districts compressed by the most since 2014 as well as over the past three years. These two district types also had the lowest retail availability rates as of Q2 2024. The strong performance of retail in Prime and Non-Prime Business districts is likely due in part to low levels of new retail supply, especially in Non-Prime Business districts which had the lowest completions as a share of existing stock (6%) over the past ten years.

Retail in Vibrant Mixed-Use, Prime Business and Non-Prime Business districts have proved less dependent on broader market fundamentals—and thus more resilient—than retail in Mixed-Use districts, which lack office properties. The five-year retail rent CAGR trendline indicates outsized growth in these districts compared to the broader market, whereas rent growth in Mixed-Use districts has trailed the broader market. Several interesting trends by market archetype emerged as well: Prime Business districts in Developing Destinations Orlando, Nashville and Tampa as well as Vibrant Mixed-Use districts in Mixed Majors San Francisco, Chicago and Philadelphia especially outperformed with respect to broader market rent growth.

Retail Rent Growth Outperforms in Vibrant Mixed-Use, Prime Business Districts

Figure 6: District vs. Overall Market Retail Rent Growth by Five-Year CAGR

Both retailers and investors can benefit from consumers’ preference for dynamic live-work-shop environments by locating and investing in and adjacent to Vibrant Mixed-Use districts. Opportunities also will emerge in office-centric districts that are transforming into Vibrant Mixed-Use districts, including areas with concentrations of office conversions.

The outperformance of retail in districts with office properties also represents a counterintuitive, potentially lucrative opportunity for investors, particularly as the office market stabilizes and begins to improve over the next few years. Office-centric Prime Business and Non-Prime districts are poised to benefit from increased office-worker foot traffic, with retail in Prime Business districts offering the highest potential to outperform the overall retail market among the four district types.

High Streets Still in Vogue

Urban high streets were among the most negatively affected by the pandemic, but the impact on retail rent growth was short-lived. Since Q2 2021, the high street rent CAGR was 3%, outperforming the broader market CAGR of 2.1%. Dallas, Los Angeles and Manhattan had the highest spreads between high street and overall market rent growth. This is remarkable considering the severity of high street rent declines relative to the broader market in 2020-2021 due to the pandemic’s impact on remote work, out-migration from some cities and pandemic-era travel restrictions. The rent spread between high streets and the overall retail market hit $38.90 in Q2 2024, the highest since 2016. These trends underscore these premier shopping areas’ strength post-pandemic and sustained appeal to consumers.

Retail in other locations has benefited from changing living and working patterns since 2020, which has activated new shopping areas, especially dense suburban retail clusters. Like high streets, the dense suburban clusters’ rent CAGR of 2.6% since Q2 2022 outperformed the broader market, and rents are 28% higher than for all other retail (excluding high streets). Since 2009 the average availability rate (5%) is lower in these clusters compared with the overall market (7% for retail excluding these clusters), with little variation over that period. Although the availability rate outside of these dense clusters has fallen faster, this is primarily due to virtually no availability within them, requiring retailers to find space in other, less dense locations.

Lowest Availability Rate in Dense Suburban Retail Clusters, High Street Availability Stable During Pandemic

Figure 7: Retail Availability Rate – High Street and Dense Suburban Clusters

High-Street Retail Rent Reached Highest Level Since 2013 in Q2 2024

Figure 8: Retail Asking Rents – High Street and Dense Suburban Clusters

Foot Traffic Patterns: Where Rubber Meets Road

We analyzed foot traffic⁴ to better understand the pandemic’s impact and the post-pandemic trajectory across major retail formats and the 19 markets studied. Total visitor traffic declined across all retail formats at the pandemic’s onset, but only urban high-street corridors saw traffic decline below pre-pandemic (2019) levels (Figure 9). Since the official end of the pandemic in May 2023, total foot traffic for all formats has rebounded to above pre-pandemic levels. Indexing unique visitor foot traffic to Q4 2022 (just before the official lifting of COVID-19 restrictions) reveals the particularly strong resurgence of urban high streets, which have outperformed all other district types in terms of growth of unique visitors during that period (Figure 10).

Foot Traffic Exceeds Pre-Pandemic Levels for All Formats

Figure 9: Total Visitors by Shopping Center Type

Strongest Foot Traffic Recovery for High-Street Retail Post-Pandemic

Figure 10: Unique Visitors by Shopping Center Type

We identified the relative performance of certain formats pre- and post-pandemic by measuring the relative change in foot traffic from 2019-2022 and 2023-2024 compared with the change in foot traffic agnostic of format:

• Steady Performer: Outlets were the only format that performed above-average both before and after the lifting of restrictions. This could speak to the demand resilience for this cluster type.
• Revenge-Period Performer: Power Centers saw the next strongest growth in foot traffic through 2022, but subsequently saw the largest decline in traffic post 2022—indicating significant mean reversion and the giving back of outsized gains.
• Rebound Performer: High Streets had the largest gap between pre-2022 performance and post-2022 performance among all formats, countering the idea that a structural shift has changed spending patterns away from urban retail in favor of more suburban formats. The data points to a more nuanced conclusion, that in only 1.5 years of unfettered choice in where to shop post-pandemic, the consumer has come back to urban high streets in full force.

Outlet Center Foot Traffic Up Both During and Post-Pandemic

Figure 11: Change in Foot Traffic by Center Type – 2019-2022 vs. 2022-2024

Looking at foot traffic by market, those with less restrictive social-distancing policies, including most of the Sprawling Darlings and Developing Destinations, generally had smaller-than-average declines between 2019-2022 and below-average gains since 2022 compared with the 19 markets in total. The opposite was true for markets with more stringent lockdown policies, including the Super Cities and several Mixed Majors, which had larger-than-average declines during COVID but have bounced back faster.

Strongest Foot Traffic Rebound in Super Cities and Mixed Majors Post-Pandemic

Figure 12: Change in Foot Traffic by Market – 2019-2022 vs 2022-2024

While there has been much discussion around the pandemic creating permanent winners and losers (both in terms of markets and retail formats), this data suggests otherwise. Although the Super Cities, San Francisco, Washington, D.C., and Boston, as well as high-street retail registered relatively large foot-traffic declines during the pandemic, they have rebounded the strongest since 2022 among the markets. And although high-street foot traffic has not increased as much relative to pre-pandemic levels compared with the other formats (Figure 9), it has grown the fastest since the end of the pandemic (Figure 10), indicating that high-street retail may have more room to run.

Two-Thirds of Retail Subsectors Vulnerable to E-Commerce

While e-commerce’s impact on retail over the past few decades has been transformational, its effect on retail subsectors and across markets has varied greatly. We measured the number of retail jobs lost due to e-commerce cannibalizing retail sales since its introduction in 1999 and found that 19 of the 28 subsectors have been highly susceptible, with bookstores, office supplies and department stores the most vulnerable.⁵ The particularly high susceptibility of bookstores was consistent with the findings from our consumer survey: Books were the only product category that consumers preferred to buy online rather than in store (albeit by a small margin of 51% preferring online versus 49% in-store). E-commerce has had no negative impact on nine of the other categories, including food services and drinking places, lawn and garden, grocery stores and warehouse clubs/supercenters.

Bookstores, Office Supplies and Department Stores Most Susceptible to E-Commerce

Figure 13: E-Commerce Susceptibility by Retail Employment Subsector

28%-37% of Retail Jobs Across Markets Susceptible to E-Commerce

To examine the effect of e-commerce on each market, we measured the overall impact of e-commerce since its introduction in 1999 and the current mix of retail jobs in each metro. This provided visibility into how much a market has been impacted by e-commerce and how much of a risk e-commerce poses going forward given the current composition of retail subsectors and susceptibility of each.

Since 1999, San Francisco has been the most impacted by e-commerce, with a 1% increase in national e-commerce resulting in 1.8% of the metro’s retail jobs lost. Conversely, e-commerce has had no effect on retail jobs in multiple Sprawling Darlings and Developing Destinations. However, San Francisco also has the lowest current share of e-commerce-susceptible retail jobs (28%), suggesting that many of the market’s e-commerce-susceptible jobs have already been eliminated. In other words, San Francisco, as well as Los Angeles, Seattle and Washington, D.C., which have similar metrics, may be less negatively impacted by future e-commerce.

Developing Destinations, Sprawling Darlings the Least Impacted by E-Commerce

Figure 14: Retail Employment Susceptibility to E-Commerce by Market

Like San Francisco, metro Nashville, Austin and Houston have relatively low shares of e-commerce-sensitive jobs, but those markets also have seen no discernible impact of a national increase in e-commerce on retail employment since 1999. This implies that those markets’ subsector mixes of retail jobs are more naturally resilient to e-commerce trends. Markets such as New York, Chicago and Philadelphia (and to a lesser extent Miami) that have both high shares of e-commerce-sensitive retail jobs and significant impacts of e-commerce on local retail jobs may face further retail labor force rightsizing. Additionally, we should consider the preferences of younger generations and impacts they might have on these subsectors. For instance, Gen Z has the highest preference for purchasing books in stores (55%) over online (45%) according to our consumer survey. Both retailer composition and consumer preferences will shape the future of the brick-and-mortar space.

These metrics are a useful starting point for understanding various markets’ high-level susceptibilities to e-commerce, but given the hyperlocal nature of retail, significant differences in risk exist across submarkets and shopping centers within each market. While a market overall may exhibit high susceptibility to e-commerce, a particular submarket or center that has a high concentration of e-commerce-resistant categories is better positioned to handle further increases in overall e-commerce adoption. Thus, applying this framework more granularly can help determine the relative resilience of a center’s tenant mix, providing vital insights into renewal probabilities, default risk and other investor underwriting considerations.