Birmingham’s retail market continues to demonstrate resilience despite national economic challenges. With a vacancy rate of 3.8 percent — slightly below the national average of 4.1 percent — and rental rates holding steady at $13.13 per square foot, the city remains an attractive destination for both investors and tenants.
However, rising interest rates have slowed development and softened transaction volumes, reshaping the investment landscape.
Macroeconomic trends
The intersection of economic pressures and shifting consumer habits is redefining Birmingham’s retail landscape. Across the nation, big-box retailer bankruptcies have contributed to negative net absorption of 346,200 square feet over the past year, and Birmingham has felt similar effects. The closure of Conn’s HomePlus, among other retailers, has contributed to this contraction.
Despite these challenges, suburban retail demand remains robust. Homewood, Hoover and Alabaster are experiencing continued growth, and Crestwood Festival Shopping Center has added new tenants like Fun City Adventure and Armor Gym occupying 100,000 square feet. These trends highlight the increasing popularity of experiential retail, as consumers gravitate toward destinations that offer more than just traditional shopping.
Development slows
New retail construction has slowed significantly, with only 130,000 square feet delivered in the past year — well below historical averages. However, the development pipeline remains active, with 67,800 square feet currently under construction. This decline in new builds reflects both economic uncertainty and the scarcity of prime development sites.
Despite the slowdown, demand in key areas remains strong. The market’s Highway 280/Jefferson County corridor and Midtown continue to command the highest lease rates, with power centers performing particularly well. While rents have declined slightly — down 1.1 percent year-over-year — Birmingham remains an affordable and appealing market for tenants compared to national averages.
Who’s buying and selling?
Birmingham’s investment sales market has seen a slowdown, with transaction volume reaching $229 million over the past year. Cap rates have risen to 8 percent, surpassing the national average, which has resulted in a more selective buyer pool. Investors are targeting both stable and value-add properties, with location being the top priority, particularly in markets like the 280 Southern Corridor, Hoover/Riverchase, Alabaster, Homewood and Vestavia.
One major trend is the shift toward suburban retail investment. With downtown office occupancy still uncertain, suburban retail hubs are proving more resilient, attracting both investors and tenants seeking long-term stability.
Potential supply surge
Many property owners have held off on selling, hoping for interest rates to decline so they can refinance. However, as more loans approach maturity, these owners may soon be compelled to sell, potentially leading to an increase in available retail properties on the market.
Final thoughts
While macroeconomic pressures and shifting consumer preferences have presented challenges, Birmingham’s retail market remains stable and well-positioned for the future. The combination of suburban retail strength, affordability and economic diversity reinforces the city’s appeal, making it a compelling market for investors and tenants alike.
— By Chapman Brown, senior associate of Marcus & Millichap. This article was originally published in the March 2025 issue of Southeast Real Estate Business.