The retail real estate landscape continues to evolve in 2025, driven by changing consumer behaviors, technological advancements, and the competitive nature of securing premium retail spaces. Although retail continues to grow, the role of the physical store is here to stay, and more and more brands are competing for spaces in the top centers.
“We’ve got over 20 locations marked, but the biggest issue is unlocking them. We know what we want… it’s being able to get into the market or the towns themselves that’s the challenge,” shared Paul Hayes, CEO of Seasalt Cornwall. The company recently entered the U.S. market and has learned that the competitive nature of the industry shows even more challenges for brands born outside the nation.
The national retail vacancy rate remained at 4.1% through 2024, driven by a lack of new development and increased retailer demand. In addition, most of those vacancies are coming from older and less desirable centers, leaving the highly rated, newer developments with even lower vacancies and more competition.
The latest CoStar data shows the lowest availabilities are amongst newer and higher-rated centers, with only 10% of the vacancies coming from centers built from 2011 onwards and only 9% of vacancies holding a four or five-star rating (a class system developed by CoStar).
Five key trends have emerged due to this competitive landscape: smaller and agile store formats, experiential retail, tailored regional and international expansion, data-driven site selection, and the suburb-first approach.
Smaller Retail Formats
Retailers are increasingly adopting smaller store formats to create more agile and efficient retail footprints. Sometimes, these spaces may even be less desirable or temporary, creating a need for flexible fixtures. These design changes can allow brands to create highly curated spaces focusing on engaging customers rather than maximizing inventory. “There’s a shift to smaller in general – smaller formats, shorter leases, more agile environments,” shared Melissa Gonzalez, Principal at MG2, adding, “What is the point of the store? It’s not about inventory now, especially as consumers are getting more and more comfortable shopping online.”
This trend is evident in brands like Kizik, which has adopted smaller stores to highlight its innovative hands-free footwear. “These spaces are designed to showcase the best of Kizik —our innovative hands-free footwear—in a way that feels approachable and tailored. Smaller formats also enable us to provide one-on-one education around our hands-free technology, providing personalized service and fostering a stronger sense of community around our brand,” shares Jason Lee, Chief Operating Officer at Kizik.
By embracing smaller and unique formats, retailers can test new markets more efficiently and get into prime real estate while delivering a memorable customer experience. This approach also aligns with the growing demand for experiential retail, prioritizing interaction over traditional shopping.
Experiential Retail Driving Foot Traffic
The role of retail stores has transformed from purely transactional spaces to immersive environments where customers can connect with brands on a deeper level. Gonzalez emphasizes, “We’re reevaluating the point of the store and how much of it needs to be about inventory per square foot versus experience per square foot.” Stores must deliver a reason for the online customer to visit that brand’s store and the center itself.
This shift is reflected in the success of brands like Lululemon, which incorporates fitness classes and wellness spaces into its stores, creating a holistic customer experience. Similarly, Wilson’s flagship locations integrate community activities, events, and services to foster brand loyalty and deepen customer relationships.
Sorel’s pop-up in Brooklyn’s Williamsburg neighborhood is also a prime example of this trend. The location featured a boot customization bar and an augmented reality (AR) experience. Customers could stand before a full-body mirror-sized screen to interact with effects like snow or rain, which reacted to their movements. This innovative use of AR showcased Sorel’s products in action and created a memorable and shareable experience for visitors.
Tailored Geographical Retail Expansion
Beyond the store itself is the market it’s located in. Competition has increased due to various international brands entering the U.S. market; On, Gymshark, and Seasalt Cornwall are just some of them. An essential part of that expansion is understanding the differences between an American consumer and how that consumer differs state-by-state.
Expanding into new regions requires a thoughtful, data-driven approach that aligns with a brand’s identity and values. For Seasalt Cornwall, this strategy has been key to its success. Hayes explains, “A fundamental starting point for us was ensuring we did enough research in the U.S. to understand it ourselves. We use local partners and other retailers; we network to ensure we’re getting it right.”
Seasalt’s expansion to small town Falmouth illustrates this strategy, acknowledging the similarities between the New England customer and its existing U.K. customer. This methodical approach to international growth ensures that each store meets the needs of its local market.
Similarly, adjusting inventory and store design across the U.S. is vital to store success. Kizik uses customer data to identify regional preferences and adjust store inventory accordingly. For example, its Newbury Street location in Boston stocks more boots during the winter season, reflecting the demands of the local climate.
Sugared + Bronzed, spas that offer tanning and sugaring, takes a similarly tailored approach, designing storefronts that reflect the unique character of each neighborhood. At its Silver Lake location, the brand has collaborated with a local artist to create a mural on the side of the building. Some proceeds will be donated to support wildfire relief efforts in Los Angeles. “It’s our way of giving back to the city we love while bringing a beautiful and meaningful piece of art to life for everyone to enjoy,” stated founder Courtney Claghorn.
Data-Driven Retail Site Selection
A data-driven approach has been around for a while, but the data types and uses have evolved. Sugared + Bronzed, for example, uses particular resources to guide its real estate expansion. As Claghorn shares, “We utilize tools like Buxton and Experian customer segmentation to analyze a mix of demographic data and customer behavior insights,” adding that, “By layering these insights with details like traffic patterns, proximity to complementary businesses, and accessibility, we’re able to make informed decisions that set our locations up for success.”
The role of data guides decision-making but also mitigates risk, ensuring the sites selected are most likely to perform. Historically, the data available today was inaccessible to brands, but that’s changed with the growth of e-commerce and location analytics platforms.
Lee from Kizik emphasizes that “customer data is central to our decision-making process. By analyzing factors such as online shopping behavior, geographic demand, and feedback from existing customers, we can pinpoint areas where our products are most sought after.” This strategic use of data allows retailers to align their physical presence with customer demand, ensuring long-term success.
The Suburb-First Retail Approach
Lastly is a suburban-first approach. Brands will end up in the suburbs as they grow their retail footprint. However, since the pandemic and embracing the hybrid work model, the expansion into suburbs has become more popular and sometimes even takes precedence over a more urban center. According to CoStar’s Q4 2024 data, the vacancy rates amongst suburban retail were the lowest across submarkets at 3.9%. Compared to 4% in urban and 4.5% in city business districts, this validates the growing demand for suburban centers.
For Sugared + Bronzed, suburbs have been at the forefront of its expansion. “We’re also seeing more opportunities in suburban markets, as remote and hybrid work has shifted how and where people spend their time. Many clients are looking for high-quality services closer to home, driving demand for well-placed, accessible locations in these areas,” shared Claghorn.
Sometimes, the customer may already be in the suburbs, but other times, the decision is led by opportunity. Some top-performing suburban centers attracting brands early in their expansion include Oakbrook Center in Chicago, where Google opened its first Mid-West store late last year. Another example is Tyson’s Corner in Washington, D.C., home to Apple’s first retail store. It’s also where Pakistani fashion brand Khaadi recently opened its first U.S. store.
Similarly, smaller towns are taking precedence over bigger cities – perhaps due to availability or simply the data showing where customers are located. Seasalt Cornwall’s first store was in Falmouth, Jones Road’s was in Montclair, New Jersey, and East Fork’s in Asheville, North Carolina. Undoubtedly, the big city high street is no longer the number one option for early expansion.
As retailers navigate 2025, focusing on smaller, agile store formats, immersive brand experiences, strategic market expansion, data-informed site selection, and suburban real estate will continue to shape retail expansion. These trends reflect a broader industry shift toward creating meaningful, memorable customer experiences while maintaining customer and landlord demand. Retailers that adapt to these trends will be well-positioned to thrive in an increasingly competitive and dynamic market.
Read the full article here