Mixed performance as consumer caution rises

Global consumer spending growth is expected to remain positive in most major markets through 2025, although sales are likely to slow in locations impacted by growing consumer caution and trade restrictions. Retailers' recent trading results are showing an increasingly mixed picture in performance across categories, while many are reviewing potential impacts of U.S. tariffs on their supply chains and taking short-term steps to manage volatility.

Retail market performance was varied across regions during Q1, with rising store closures in the U.S. contributing to the first quarter of negative net absorption for four years. Although power and neighbourhood center vacancy is likely to continue increasing through the year, the market is still supply-constrained for newer, Class A space. In Europe and higher-growth or tourism-oriented economies in Asia Pacific retailer demand remains healthy for premium central space.

Future trends: Divergent performance as retailers assess growth outlook and supply chains

Short-term: Divergence in retail market performance is likely to continue through 2025. In the U.S., supply chain concerns will lead to varied responses as retailers assess the impacts of evolving trade policy and explore options including accelerating shipments to build inventory, pausing imports and seeking alternative suppliers. Markets with strong household balance sheets, higher GDP and income growth, and tourism-oriented destinations – including Central and Eastern and Southern Europe, the Middle East, India and Southeast Asia – are expected to see the most resilient consumer spending growth. With limited new construction in mature markets, prime locations will remain supply constrained.

Long-term: The landscape of online retail has undergone significant changes over the last decade. The increase in fulfillment costs is a particularly striking example, with global fulfillment costs as a percentage of net retail sales for e-commerce companies nearly doubling over a 10-year period to reach 23% in 2024. This can be attributed to rising transportation costs, higher salaries and escalating operational expenses. In contrast, brick-and-mortar retailers in shopping centers face more stable occupancy costs as a percentage of in-store revenue, typically ranging from 11% to 17% in 2024. This disparity has made in-store fulfillment often more cost-effective than home delivery. As a result, retailers have gained renewed confidence in physical stores, with many opting for larger formats that incorporate click-and-collect services for online purchases. This hybrid approach offers several advantages: it improves profit margins, encourages impulse buying when customers collect their orders and reduces storage costs for retailers.