Retail is on pace to remain one of the strongest growth sectors in commercial real estate in the upcoming year, according to PwC’s Emerging Trends in Real Estate 2025 report. Despite an uptick in bankruptcies and legacy chainstore closures, retail leasing is expected to remain robust, driven by evolving consumer preferences and the adaptability of spaces to accommodate new and innovative concepts.
Commercial Property Executive reached out to PwC Partner Andrew Alperstein to discuss the prospects of the sector in detail. From the sustained demand for physical retail space to the emergence of new growth stories across various categories, this conversation focuses on the trends shaping the future of retail.
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How has the retail sector performed over the past few years?
Alperstein: According to our 2025 ETRE survey results, participants’ sentiment has continued to improve since 2021. Retail still ranked fifth out of our six property sectors this year, but it was only slightly behind hotels and within reach of both rental housing options, single-family and apartments. This improvement in sentiment is quite significant, reflecting the sector’s resilience and adaptability. It will be interesting to see the survey results for 2026, as the retail sector’s evolving trends and strong fundamentals could potentially boost its standing even further.
What specific trends have been driving this resilience and adaptability in the sector?
Alperstein: Retail trends that stood out from our report interviews this year revolved around the ongoing demand for physical space, which has remained robust despite economic fluctuations, and the significant redevelopment opportunities arising from the contraction in certain retail sectors, such as drug stores.
What specific factors will continue to drive growth in this previously challenged sector?
Alperstein: There are several key factors driving the sustained growth in the retail sector within commercial real estate. Firstly, we have seen strong leasing activity, particularly in non-merchant categories. Despite an uptick in bankruptcies, demand remains high and new development has been limited, keeping vacancy rates at 20-year lows.
Another significant factor is the post-pandemic rebound. The demand for physical retail space has surged since 2020, driving vacancy rates to their lowest in over a decade. This rebound was much stronger than many had anticipated.
So what exactly would you say makes retail investments particularly attractive to investors in the current market?
Alperstein: Investment stability plays a crucial role. Retail investments, especially in open-air shopping centers like grocery-anchored ones, have been less volatile compared to other property types. This stability has attracted investors looking for reliable returns.
Additionally, the contraction in the drug store industry presents significant redevelopment opportunities. Many of these spaces are being quickly backfilled by expanding concepts, which help maintain occupancy levels.
Despite high consumer debt, retail sales have remained in positive territory since 2020. Continued consumer spending supports retail growth, even in challenging economic conditions.
What other tenant categories, beyond experiential concepts, are driving demand for retail spaces?
Alperstein: New growth stories are emerging. Tenant regulars, off-price apparel, grocery stores, fitness clubs, discount stores and restaurants continue to actively lease space. The restaurant sector is quickly expanding for fast food and fast casual concepts. However, new culinary concepts, experiential businesses and medical spas are also driving demand for retail space. Experiential concepts, including entertainment venues, competitive socializing and interactive art installations, are also seeing significant growth. These new entrants are driving demand for retail space.
Additionally, medical spas and quasi-medical users, such as urgent care and veterinary care facilities, have seen increased demand. These sectors are expanding rapidly and contributing to the overall growth in the retail real estate market.
Overall, these factors and areas of increased demand highlight the dynamic and resilient nature of the retail sector in commercial real estate.
What are your expectations for the sector’s performance in the upcoming year?
Alperstein: Based on the trends and data we have observed, I expect the retail sector to continue its impressive performance in the upcoming year. The ongoing demand for physical retail space, particularly in non-merchant categories, is likely to remain robust. This demand is driven by limited new development and high occupancy rates, which have kept vacancy levels at historic lows. The post-pandemic rebound has shown that consumers still value in-person shopping experiences and this trend is expected to persist.
Overall, the retail sector is poised for continued growth and adaptation, with strong fundamentals and innovative developments leading the way. We anticipate that these trends will sustain the sector’s positive trajectory into the next year, making it an exciting time for retail real estate.