In brief
- 1
Retail is tight because almost nothing new is getting built. Retail space delivered fell from 52.3 million SF in 2023 to 30.0 million SF in 2024, a 43% drop, and 130 million square feet of obsolete retail space has been demolished.
- 2
Retailers came back to the store. Chains use stores to fill online orders and to handle returns for less than mail. Global in-store sales are projected to rise from $24.2 trillion in 2024 to $28.3 trillion by 2030, per Statista.
- 3
Massachusetts shoppers have more to spend. Median household income here is $89,000 against $75,000 nationally, and the state's density means neighborhood retail actually pencils out.
- 4
Grocery-anchored neighborhood centers are holding up best. Target cap rates run 6.5-7.5% depending on the anchor's credit and the location. Necessity tenants such as dollar stores, pharmacies and quick-service restaurants are the other format to buy.
- 5
Expect a soft patch through mid-2026. CoStar sees national vacancy ticking up and topping out under 4.4%, with net absorption averaging 3.8 million SF a quarter against a 5-year average of 9.8 million SF. Macy's and Kohl's have announced Massachusetts store closures.
Why physical stores are full again
Remember the "retail apocalypse"? From 2017 to 2020 the headlines had e-commerce killing off brick-and-mortar for good. It didn't happen.
What the numbers say
Global In-Store Sales:
- 2024: $24.2 trillion
- 2030 (projected): $28.3 trillion
U.S. Daily Brick-and-Mortar Revenue: $16.2 billion (Q1 2025 average)
Massachusetts Retail Vacancy: 2.2% (20-year low)
National Retail Vacancy: 4.3% (Q2 2025)
What's behind it
1. Supply collapsed while demand held
The biggest reason retail is tight is straightforward. Nobody's building, and people kept shopping.
| Year | Retail Space Delivered |
|---|---|
| 2023 | 52.3 million SF |
| 2024 | 30.0 million SF |
That 43% drop in new construction comes down to a few things:
- Construction costs got too high to pencil out new development
- Interest rates pushed financing costs up
- Zoning in a lot of towns won't allow new retail anyway
- Developers went chasing industrial and multifamily instead
At the same time, 130 million square feet of obsolete retail space has been demolished over the past few years. That pulls old, unleaseable inventory off the board.
2. Retailers came back to the store
The big chains figured out physical stores aren't optional:
- Omnichannel fulfillment: Stores double as distribution points for online orders (BOPIS, ship-from-store)
- Brand experience: A storefront builds awareness and keeps customers coming back
- Returns processing: Handling a return in-store costs a lot less than mail
- Customer acquisition: A physical store brings customers in cheaper than digital-only does
Plenty of online-only brands that swore they'd never sign a lease are now opening stores as fast as they can.
3. Remote work helped, which nobody saw coming
Working from home turned out to be good for neighborhood retail. With more people home during the day:
- Local spending went up in the suburbs
- Daytime foot traffic moved out of downtowns and into residential areas
- Neighborhood centers became the spot where people run into each other
Winners and losers
Retail isn't one thing. The gap between the good stuff and the bad stuff is wide right now:
Winning Formats:
| Format | Why It's Working |
|---|---|
| Neighborhood Centers | Essential retail, convenience, local spending |
| Grocery-Anchored | Non-discretionary traffic driver |
| Experiential Retail | Fitness, dining, entertainment |
| Necessity Retail | Dollar stores, pharmacies, QSR |
| Medical Retail | Growing healthcare demand |
Challenged Formats:
| Format | Challenges |
|---|---|
| Enclosed Malls | Traffic decline, anchor store struggles |
| Big Box (Secondary) | E-commerce competition |
| Apparel-Focused | Consumer shift to experiences |
Why Massachusetts holds up
A few things work in this state's favor:
Demographics: Household incomes here run higher ($89,000 median vs. $75,000 national), which means more money spent at retail.
Education: College towns give you a steady, educated customer base.
Tourism: Boston's tourist traffic keeps urban retail busy.
Density: More people per square mile means neighborhood retail actually pencils out.
How I'd invest in 2026
With vacancy this low and so little new space coming, here's where I'd put money:
1. Neighborhood grocery-anchored centers
What you get:
- Anchor tenants locked into long-term leases
- Essential retail that shrugs off e-commerce
- Enough traffic to fill the small shops
- Cash flow you can count on
Target cap rates: 6.5-7.5% depending on the anchor's credit and the location
2. Necessity-based retail
Stick with tenants selling what people actually need:
- Dollar stores (Dollar General, Dollar Tree)
- Pharmacy/drug stores (CVS, Walgreens)
- Quick-service restaurants
- Auto service
- Medical/dental offices
3. Value-add plays
Since almost nothing new is getting built, fixing up a tired center can add real value:
- Reworking the tenant mix toward experiential uses
- Adding outparcels for quick-service restaurants
- Cleaning up the common areas and facades
- Fixing the parking and access
What to keep an eye on
Store Closures: Even with the market strong, some chains are still in trouble. Macy's and Kohl's have announced Massachusetts store closures. Stress-test your tenant concentration before you underwrite.
2026 Vacancy Forecast: CoStar sees vacancy ticking up through mid-2026, topping out under 4.4% nationally. Net absorption is projected to average 3.8 million SF a quarter, below the 5-year average of 9.8 million SF.
Interest Rate Sensitivity: Retail cap rates are still high by historical standards because financing costs more. If rates come down further, expect some compression.
Where this leaves us
The sector everyone was ready to bury has the best fundamentals I've seen in decades. Supply dried up, retailers figured out omnichannel, and shopping patterns shifted. All of it lined up in retail's favor.
For investors who stick to good locations and essential tenants, the returns hold up well against the risk, especially here in Massachusetts where vacancy is at a historic low.
Lornell Real Estate represents retail properties across Central Massachusetts. Contact us to discuss available opportunities in this sector.
Omnichannel fulfillment is a retail strategy that integrates online and physical store operations to give customers a consistent experience, using the stores for things like order pickups and returns.
Sources: CoStar Group, CoStar, Q2 2025, Statista.
Limitations: Market data, projections, and trend analyses reflect conditions at publication. Commercial real estate markets are inherently cyclical, and submarket and property-level performance can diverge significantly from the regional averages cited. Demographic data, employer information, and regulatory conditions are subject to change. This article does not constitute investment advice. Conduct property-specific due diligence and consult qualified professionals before making investment decisions.
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