Retail leasing demand stays strong

Retailer demand for space in prime locations remained robust in the fourth quarter despite subdued consumer sentiment in a number of major markets and lackluster global spending growth over the year. The retail sales outlook for 2025 is positive as stronger consumer spending growth is expected in most major markets, driven by rising real wages, resilient household balance sheets and continued increases in tourism spending.

Although retail bankruptcies have risen in the U.S. and Europe, availability is limited and space coming onto the market is being absorbed again quickly. Retailer activity also remains healthy in high-growth and tourism-oriented markets in Asia Pacific. Leasing activity is likely to be constrained in 2025 by falling new construction levels and low vacancy in mature markets. As a result, prime rents are expected to pick up in more locations due to increased competition among retailers for the best space.

Future trends: Focus on differentiation through experiences and technology

Short-term: Global retail sales growth is set to remain steady or increase moderately across major markets through 2025. Key retail categories including fashion, luxury, F&B and entertainment are continuing to expand to capture diversification benefits as they target destinations with strong fundamentals, while primarily online retailers are also expanding their physical store networks. Leasing markets are set to remain active, although limited available space in mature markets will hold back absorption levels in prime locations and selectively broaden activity beyond the top locations and gateway cities. The mismatch between supply and demand will continue, intensifying competitive tension between major brands to secure quality space.

Long-term: More retailers are using experiential retail and technology to engage consumers and drive foot traffic and sales in physical stores. This includes interactive displays, in-store events, personalized services, unique spaces, technology-enhanced interactions and design that reflect the brand's identity. This strategy aligns with the growing desire for experience-related purchases and helps retailers and landlords differentiate themselves in an omni-channel environment by creating memorable experiences, building stronger relationships and encouraging repeat visits.