Market Forecast 2026 Mid-Year
Retail
Outlook
RETAIL REMAINS RESILIENT AMID SELECTIVE GROWTH
The retail sector continues to demonstrate resilience, supported by limited new supply, healthy consumer spending, and consistently low vacancy rates.
Although retailers have become more selective in their expansion plans, leasing demand remains strongest from grocery, discount, service-oriented, restaurant, health and wellness, and value-focused concepts. New construction remains near historic lows, helping sustain high occupancy levels and support rent growth across a range of retail formats.
As a result, retail fundamentals remain stable despite a more cautious economic environment.
RETAIL SALES REACH NEAR-RECORD LEVELS DESPITE ECONOMIC UNCERTAINTY
U.S. retail sales remain steady despite higher interest rates and continued economic uncertainty, underscoring the strength of consumer spending.
Nominal retail sales, which are not adjusted for inflation, reached $768.6 billion in June 2026, an increase of 6.7% year-over-year and the fifth consecutive month of growth. Inflation-adjusted retail sales also remain positive. Following two years of relatively flat growth and a period of falling below the linear trendline, inflation-adjusted spending has risen to near-record levels, indicating that consumers are not only paying higher prices but also purchasing more.
Stable labor market conditions, wage growth, and continued spending by higher-income households have helped support retail activity, even as consumers become more selective in their purchases. Overall, both nominal and real retail sales point to a consumer sector that remains a key source of stability for the broader U.S. economy.
U.S. “Real” Retail Sales Improving in 2026
| Period | Real Retail Sales (Excl. Motor Vehicles) |
|---|---|
| December 2019 | $134.3B |
| December 2021 | $152.6B |
| December 2023 | $150.3B |
| December 2025 | $152.2B |
| June 2026 | $157.1B |
Real Retail Sales = a measure of consumer spending adjusted for inflation rather than the simple total dollar value of retail sales. Source: U.S. Census Bureau, U.S. Bureau of Labor Statistics.
URBAN VACANCY DECLINES AS SUBURBAN RETAIL MAINTAINS ITS ADVANTAGE
Although the Western U.S. retail market has generally performed well, results continue to vary significantly by location.
Major urban markets such as San Francisco and Seattle have experienced a slower recovery, particularly in downtown districts where remote and hybrid work have reduced daytime foot traffic and retailer demand. However, conditions improved during the first half of 2026, with urban vacancy rates declining by 60 basis points since January.
In contrast, suburban markets such as Phoenix, Reno, and Sacramento continue to benefit from population growth, stronger household spending, and more consistent retail activity. Since 2019, vacancy rates across urban retail corridors have increased by roughly 330 basis points, compared with approximately 60 basis points in suburban markets, underscoring the continued strength of neighborhood and suburban shopping centers.
Urban Vs Suburban Performance Gap Persists
| Period | Urban Vacancy Rate | Suburban Vacancy Rate |
|---|---|---|
| 4Q 2019 | 4.0% | 4.4% |
| 4Q 2022 | 5.7% | 4.4% |
| 4Q 2024 | 7.6% | 4.7% |
| 2Q 2026 | 7.3% | 5.0% |
Change vs. 4Q 2019: urban +330 basis points, suburban +60 basis points. Source: CoStar, Kidder Mathews Research.
Vacancy Rate by Market
| Market | 4Q 2019 | 2Q 2025 | 2Q 2026 |
|---|---|---|---|
| Inland Empire | 6.5% | 6.3% | 6.4% |
| Sacramento | 5.8% | 5.8% | 6.0% |
| Oakland/East Bay | 3.8% | 5.6% | 5.9% |
| San Francisco | 3.0% | 6.9% | 5.8% |
| Los Angeles | 4.5% | 5.8% | 5.8% |
| Portland | 3.0% | 4.6% | 4.8% |
| Phoenix | 6.7% | 4.5% | 4.7% |
| SF Peninsula | 3.4% | 4.5% | 4.6% |
| San Diego | 3.6% | 4.3% | 4.6% |
| Seattle | 2.5% | 3.9% | 4.1% |
| Reno | 5.7% | 4.4% | 4.0% |
| Orange County | 4.0% | 4.0% | 3.9% |
| Silicon Valley | 3.5% | 4.3% | 3.4% |
| Western U.S. | 4.4% | 5.0% | 5.1% |
Source: CoStar, Kidder Mathews Research
Investment Market Activity
| Period | Total Sales Volume (Rolling 4-Qtr Total) | Avg. $/SF (4-Qtr Rolling Avg.) |
|---|---|---|
| 4Q 2023 | $14.6B | $295.64 |
| 4Q 2024 | $15.3B | $287.17 |
| 4Q 2025 | $19.0B | $307.27 |
| 2Q 2026 | $20.7B | $308.08 |
Source: CoStar, Real Capital Analytics
RETAIL OUTLOOK: POSITIONED FOR STEADY GROWTH
Retail fundamentals remain healthy as consumer activity recovers and new supply remains extremely limited.
Across the Western U.S., 10 of the region’s 12 major markets have recovered to at least 90% of their pre-pandemic visitation levels, supporting continued demand for well-located retail space as physical stores still account for the majority of retail spending. At the same time, historically low levels of new construction and limited availability have helped keep vacancy rates near long-term lows and support steady rent growth.
Grocery-anchored centers, neighborhood shopping centers, and other open-air formats continue to outperform, benefiting from consistent consumer demand and strong leasing activity. Although some urban markets and aging retail properties continue to face challenges, the sector enters the second half of 2026 with healthy fundamentals and a favorable outlook supported by stable consumer spending, constrained supply, and continued demand from necessity-based retailers.
Western U.S. Forecast
| Year | New Deliveries | Net Absorption | Total Vacancy Rate |
|---|---|---|---|
| 2024 | 6.6M SF | -0.8M SF | 4.8% |
| 2025 | 7.3M SF | 0.4M SF | 5.1% |
| 2026F | 7.2M SF | 4.2M SF | 5.2% |
| 2027F | 5.7M SF | 3.6M SF | 5.2% |
| 2028F | 5.9M SF | 4.0M SF | 5.2% |
Source: CoStar, Kidder Mathews Research. “F” = forecast. Negative net absorption indicates more space vacated than leased.
Frequently Asked Questions
What were U.S. retail sales in June 2026?
Nominal retail sales reached $768.6 billion in June 2026, an increase of 6.7% year-over-year, according to Kidder Mathews research (data source: U.S. Census Bureau). This marked the fifth consecutive month of growth. The increase reflects both higher prices and increased consumer purchasing activity.
Are inflation-adjusted retail sales still growing in 2026?
Yes, inflation-adjusted (“real”) retail sales have risen to near-record levels in 2026, according to Kidder Mathews research (data source: U.S. Census Bureau, U.S. Bureau of Labor Statistics). This follows two years of relatively flat growth, during which real sales had fallen below the 10-year linear trendline. The rebound indicates consumers are purchasing more, not just paying higher prices.
What is the current retail vacancy rate in Western U.S. urban markets?
The Western U.S. urban retail vacancy rate stood at 7.3% as of the second quarter of 2026 (data source: CoStar, Kidder Mathews Research). This represents an increase of approximately 330 basis points since the fourth quarter of 2019. Major urban markets such as San Francisco and Seattle have seen slower recoveries due to reduced downtown foot traffic from remote and hybrid work.
What is the current retail vacancy rate in Western U.S. suburban markets?
The Western U.S. suburban retail vacancy rate was 5.0% as of the second quarter of 2026 (data source: CoStar, Kidder Mathews Research). Suburban vacancy has increased by only about 60 basis points since the fourth quarter of 2019, far less than the urban increase. Markets such as Phoenix, Reno, and Sacramento have benefited from population growth and stronger household spending.
Have urban retail vacancy rates improved in 2026?
Yes, urban retail vacancy rates declined by 60 basis points between January and mid-year 2026, according to Kidder Mathews research (data source: CoStar). This improvement occurred even as urban markets like San Francisco and Seattle continued to lag behind suburban performance overall. The decline suggests early signs of stabilization in downtown retail corridors.
How many Western U.S. retail markets have recovered to pre-pandemic visitation levels?
10 of the 12 major Western U.S. retail markets tracked by Kidder Mathews had recovered to at least 90% of their pre-pandemic visitation levels as of mid-year 2026, according to Kidder Mathews research. This supports continued demand for well-located retail space, since physical stores still account for the majority of retail spending. The recovery has occurred despite a more cautious broader economic environment.
What is the average price per square foot for retail property sales in the Western U.S.?
The average sale price for Western U.S. retail properties was $308 per square foot on a four-quarter rolling average basis as of the second quarter of 2026 (data source: CoStar, Real Capital Analytics). This reflects continued investor demand for retail assets despite higher interest rates. Investment activity has remained a consistent indicator of retail sector health throughout 2026.
Which retail categories are driving the most leasing demand in 2026?
Leasing demand remains strongest among grocery, discount, service-oriented, restaurant, health and wellness, and value-focused retail concepts, according to Kidder Mathews research. Retailers overall have become more selective in their expansion plans compared to prior years. These categories benefit from consistent consumer demand regardless of broader economic uncertainty.
Which Western U.S. retail markets are experiencing the slowest recovery?
San Francisco and Seattle have experienced the slowest retail recoveries in the Western U.S., particularly in downtown districts, according to Kidder Mathews research. Remote and hybrid work patterns have reduced daytime foot traffic and retailer demand in these urban cores. However, conditions in these markets did improve modestly during the first half of 2026.
Why is new retail construction so limited in 2026?
New retail construction remains near historic lows across the Western U.S. in 2026, according to Kidder Mathews research. This limited supply has helped sustain high occupancy levels and support rent growth across a range of retail formats, particularly grocery-anchored and neighborhood shopping centers. Constrained new supply, combined with historically low availability, is a key factor keeping vacancy rates near long-term lows.
ContactGARY BARAGONA |
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