CHICAGO — Retail closures are at a cyclical high, totaling a whopping 9,900 business shutdowns in 2024, according to JLL’s fourth-quarter 2024 retail report entitled “United States Retail Market Dynamics.” For the first time in several years, store closures outpaced store openings in a calendar year.
Fabric and crafts retailer JOANN, who filed for Chapter 11 bankruptcy protection twice within a year, is shuttering all 800 stores, while major department store chain Macy’s will close 150 stores over the next three years, with 66 closures anticipated in 2025 alone. The highest number of store closures resulted from discount and dollar stores like Family Dollar, CVS Health and Big Lots, as well as specialty retailers like Party City.
Retail closures are represented across different size brackets, with more than 55 percent of announced closures identifying with footprints ranging from 5,000 square feet to 20,000 square feet. Expanding retailers such as Dollar General, O’Reilly Automotive and Five Below align with these vacant boxes, while larger, major closures like Bed Bath & Beyond and Toys “R” Us occupy more “desirable” locations.
On the flip side, between 2024 and 2025, there were roughly 7,700 new retail store openings announced. Nearly 3,000 of these openings came from restaurants — specifically fast-casual concepts and quick-service restaurants (QSRs). Other retail categories that seem to be performing well with strong opening numbers are grocery stores, such as Aldi, and discount and dollar stores like Dollar General and Burlington.
Aldi, in particular, has made waves with its announcement of plans to open more than 225 new store locations in this year alone. As part of its five-year national growth strategy, the new stores will comprise original Aldi supermarkets and the conversion of select Winn-Dixie and Harveys Supermarket stores. Aldi currently operates more than 2,400 grocery stores in the United States, with that number soon to grow with its expansion into the Southeast.
Location matters
What makes a retail space more desirable? According to several real estate companies, a combination of location, visibility and size is the typical answer. First National Realty Partners, a shopping center investor and owner based in Red Bank, N.J., posted a blog that said the same property in a “good location could prove to be more substantially more successful than if it was located in a less desirable area.”
Retail properties are strategically located to attract foot traffic, provide convenient car access and cater to consumer needs in order to create an engaging shopping experience, while also attracting tenants to the space. Tenants tend to snatch up properties that offer these qualities, while the rest of the inventory takes longer to fill.
Party City, specifically, exemplifies a strong example of the differences of attraction with space availability. After announcing the liquidation of all stores in December 2024, 695 Party City store leases were auctioned off, with considerable size differences ranging from 7,000 square feet to 46,000 square feet. There were bids for only roughly 250 of the shuttered stores, underscoring the gap between available and desirable space.
Construction remains limited
Although the naturally pessimistic outlook of things stems from the fact that there were more retail closings than openings in 2024, an encouraging trend of these closings is the new availability of space in the market. According to research presented in JLL’s retail report, the uptick of retail closures will return roughly 140 million square feet back to the market. At the same time, U.S. retail real estate construction remains muted.
Annual construction starts are the lowest they’ve been in the past 15 years, and one of the dominating challenges is not only the lack of new supply, but also the discrepancy between the current supply and demand. JLL reports that nearly 30 percent of available retail space is located in Class C properties, with less than 25 percent of those properties built in this century. Retailers that are looking for newer, higher quality spaces are finding fewer options because of this predicament, and expanding tenants will ultimately need to turn to vacated spaces to fulfill opening plans. Unfortunately for them, tenant space availability is currently sitting at a tight 4.7 percent.
Record low availabilities show that there will be no immediate reprieve to the supply crunch. New deliveries decreased by roughly 12.1 percent since the previous quarter, therefore retail inventory will “most likely” continue to enforce a ceiling on leasing activity moving forward. Additionally, JLL is forecasting for future construction to only have a “moderate acceleration” of growth.
Leasing activity is shifting
Over the past decade, there has been a gradual shift in consumer focus — so much so that JLL has categorized it as a “historic shift in the retail property sector.” Whereas once, consumers preferred goods-based tenants, such as apparel retailers, bookstores and department stores, they are now flocking to service-based tenants like restaurants, gyms and nail and hair salons.
JLL projects service-based tenants to lease more retail space than goods-based tenants, with fitness, healthcare and food and beverage (F&B) leading the way. F&B expansion derives primarily from places like McDonald’s, Chipotle, Dunn Brothers Coffee and Potbelly, while fitness expansion originates from Alloy Personal Training, Planet Fitness and Club Pilates, among others. Urgent care centers, dentists and opticians are among the most favored health tenants.
Market conditions
The availability of suitable supply may lend uncertainty in the retail sector. However, the average U.S. retail investment sale in 2024 climbed to $20.2 million, which JLL reports is a 12-year high. This increase poses a bright side, as current market conditions continue to present a unique opportunity for investors to acquire retail properties at prices below their replacement costs for value-add opportunities — such as larger-box, trophy power centers or malls — to recover consumer demand in these particular retail formats.
For example, owners will now have to decide between redeveloping the former spaces — while considering a mixed-use component for the property — or backfill the anchor with one or more retailers. Whereas the derailment of Macy’s department stores insinuates failure, the closings from this year alone will return a hefty 12 million square feet of anchor space back to malls across the country. JLL reports that tenants like Puttshack, Crate & Barrel, Dick’s Sporting Goods, Planet Fitness, Whole Foods Market, Von Maur, Life Time and Harbor Freight have already been able to backfill department store space over the past several years. And at larger shopping centers, retailers such as Amazon Fresh, VASA Fitness, Burlington and Ollie’s Bargain Outlet have recently signed leases, emphasizing the ongoing appeal of these retail spaces.
While demand has shifted negatively for malls specifically, generating 3.3 million square feet of negative net absorption in 2024, strong demand for retail strip centers remains present, boosting net absorption levels for smaller shopping centers that had already began rolling out store closures last year. While community and neighborhood centers saw negative net absorption for 2024, strip center net absorption totaled approximately 2 million square feet. This offset of retail preference ultimately led to a combined total of 500,000 square feet of positive net absorption across all shopping center types.
Overall, net absorption and leasing activity saw 2024 numbers dip to their lowest levels since 2020, according to JLL.
Looking ahead
JLL’s report suggests that the highest quality spaces in the “best” neighborhoods, locations and markets will be the first properties seized because of the strong population and income growth for those areas. Lower-quality spaces will continue to sit on the market as they struggle with stagnant or declining populations, as well as decreasing rents and lower leasing activity.
Moving forward, there is still ample opportunity for growth in the retail sector, ensuring the long-term viability of retail openings in the coming years. The U.S. retail landscape is constantly evolving. The evolution of these changes does not suggest a loss, but an adaption to the current climate.
To read the entire JLL report, click here.
— By Abby Cox