Fears that brick‑and‑mortar retail would fail to recover have given way to a more durable market reality. Centers anchored by everyday needs and convenience have demonstrated staying power, benefiting from steady foot traffic and resilient consumer demand.

“Rumors of my death have been greatly exaggerated,” Mark Twain once wrote, a sentiment reflected in Q4 2025 market data, which highlights consistent performance across select retail segments at both the national level and within core KBS markets.

This second installment of our five‑part series shifts from broad market conditions to a deeper examination of individual property sectors. Here, we focus on the Retail segment, exploring current performance, emerging trends, and what recent data suggests about future strength

A Course Correction Continues

Consumer pull-back in discretionary spending, beginning in Q2 2020 and extending through mid-2025, entered its next phase in Q3 2025. Experts consider the volatility in the first half of 2025 a continuation of the correction rather than a sustained downward trend. Short‑term fluctuations were driven by macro uncertainty, including changes under the new federal administration, inflationary pressures, evolving tariff policies, and continued mid‑market retail closures. As the year progressed, however, consumers seemed to settle into a more consistent spending environment.

Much of the overall improvement experienced in Q4 2025 can be attributed to both increased consumer spending and limited retail supply. From a real estate perspective, the constrained development of high‑quality retail space has supported strong backfilling activity and encouraged creative reuse of second‑generation assets, helping stabilize vacancy rates. Grocery stores, discount retailers, and sporting goods operators continue to anchor much of this absorption. Development in or around walkable, mixed-use residential areas, where convenient “necessity shopping” remains strong, has been a major driver of overall retail stability.

That momentum has moderated in early 2026. U.S. retail construction totaled 64.2 million square feet in the first quarter, down from 70 million square feet a year earlier and well below the 10‑year average of approximately 90 million square feet, according to CoStar Group. New development remains highly concentrated, with Dallas, Houston, and Austin the only U.S. markets reporting pipelines exceeding 3 million square feet, markets where KBS also maintains a meaningful property presence.

Not all Retail is Equal

To gain a clearer view of retail performance, it is important to step back and recognize that not all segments are improving at the same pace. Currently, open-air neighborhood or family centers drive nearly 70% of retail activity. Grocery-anchored centers, which include supermarkets, convenience food marts, fitness centers, family entertainment, urgent care, and other medical services, outperformed all other retail formats in 2025. By prioritizing everyday consumer goods and necessities and by creating reliable, consistent visitation patterns, these market hubs consistently outperform those more reliant on discretionary spending.

Necessity- and convenience-based developments remain economically stable, in large part because they are less exposed to the volatility of discretionary spending, which typically fluctuates with broader economic conditions. Research also indicates that resident and family-oriented destinations increase both consumer frequency and time spent onsite throughout the week.

Reflecting these dynamics, grocery stores and discount retailers accounted for approximately 50% of store openings by square footage. KBS covers this topic in greater depth in “Why Grocery-Anchored and Open-Air Retail Should Remain a Safe Harbor in 2026.”

Further, neighborhood centers that generate consistent foot traffic generally outperform retail formats that rely on destination‑driven trips requiring longer travel distances and transportation to reach.

This trend is evident in markets such as the Midwest and the Northwest, where retail fundamentals strengthened alongside rising employment and mobility. In Chicago, retail at KBS’ Accenture Tower, located above the Ogilvie Transportation Center, benefits from consistent commuter traffic and proximity to dense office and residential uses, factors that helped support regional absorption gains in late 2025.

Similarly, in Portland, street-level retail at KBS’s iconic Meier and Frank building has benefited from its central location, walkability, and integration within an active urban corridor. Together, these examples underscore how retail tied to transportation hubs, employment centers, and walkable environments continues to demonstrate greater resilience than formats reliant on destination‑driven trips.

Rethinking Leasing

Beginning in Q3 2025, vacant retail space began to backfill, driven by strengthening demand and a continued lack of new supply. Asking rents also increased year-over-year. Rather than relying solely on rent growth, however, many owners have considered more disciplined leasing strategies to better manage risk across cycles. Flexible lease structures, often combining lower base rents with percentage‑rent participation, are gaining traction, aligning landlord income more closely with tenant performance while reducing fixed-cost pressure on occupiers.

Tenant Improvement (TI) strategies are becoming more selective and return‑driven. Asset owners are increasingly prioritizing TI capital for tenants that consistently generate foot traffic, demonstrate sales durability, and align with long‑term occupancy objectives. This shift toward performance‑based capital allocation emphasizes sustainable cash flow and downside protection over short‑term occupancy gains. Collectively, these selective leasing and investment practices have helped stabilize retail fundamentals by recalibrating risk‑sharing between owners and tenants, strengthening both near‑ and long‑term market resilience.

The Future of Retail: Purpose‑Driven, Not Legacy‑Driven

The retail landscape has shifted significantly from its historical model. Changes in consumer purchasing behavior, shaped by economic uncertainty, regulatory complexity, workforce dynamics, and rapid technological advancement, have redefined how and where consumers engage with retail. Today’s retail environment is increasingly focused on convenience, necessity, and efficiency, reflecting structural changes rather than temporary disruptions.

Shopper motivation profiles have continued to evolve, even beyond the era of the millennial consumer. Gen Z shoppers (born between 1997 and 2012) place greater emphasis on products and experiences that deliver practical benefits such as health, convenience, and value. They also tend to favor brands and retail environments that align with broader sustainability, inclusion, and social responsibility priorities.

Following close behind, Gen Alpha (born from approximately 2010 onward) is the first generation to be raised entirely in a digitally native environment, with an early exposure to global issues and a heightened awareness of social and environmental impact. As this group grows in influence, retailers are increasingly refining merchandise mixes and store formats to better align with evolving consumer expectations and long‑term demand drivers.

According to the largest retail trade association in the U.S., the National Retail Federation, representing retailers of all sizes, these are the driving trends for 2026 and beyond are:

  • AI-driven personalization: Advanced algorithms are increasingly used to analyze large volumes of consumer data, allowing retailers to deliver more tailored shopping experiences across both digital and physical channels. Global investment in AI is projected to exceed $2 trillion by 2026, with much of that capital focused on personalization and customer relationship management.
  • Seamless omnichannel experiences: Omnichannel retail integrates consumer buying across in-store, website, mobile app, social media, email, and phone.  These channels operate cohesively, sharing data to support more consistent engagement and purchasing experiences.
  • Smarter consumer agents: Enhanced Chatbots and Virtual Assistants will become much more effective and provide a seamless interactive consumer experience. NRF forecasts that by 2026, approximately 25% of U.S. consumers will regularly engage with retail chatbots.
  • Enhanced QR Code technology: QR codes are evolving with native camera scanning, faster recognition, and persistent operating‑system shortcuts. Retailers are increasingly using QR codes to support menus, check‑in and checkout, and loyalty programs, creating more seamless and efficient in‑store experiences.
  • Autonomous Supply Chains: Predictive analytics and automation are enabling retailers to forecast demand more accurately, manage inventory in real time, and optimize supply‑chain operations, helping reduce costs and improve responsiveness.
  • Widely enhanced pickup and delivery options: Retail logistics are expected to continue evolving using autonomous delivery technologies, including sidewalk delivery robots, centralized delivery hubs, automated locker systems, and location‑specific drone delivery, further improving speed and convenience for consumers.

Looking Ahead

Consumer buying, leasing, capital investments, and construction in the pipeline are all on the rise after recalibration in early 2025. Investment in retail assets increased 27% from Q4 2024 to Q4 2025 to roughly $60 billion. Retail fundamentals reflect this recalibration. Following a period of adjustment in early 2025, consumer spending, leasing activity, capital investment, and construction pipeline activity all strengthened. Investment in retail assets rose 27% from Q4 2024 to Q4 2025, reaching approximately $60 billion.

Market data points to a competitive environment heading into 2026, with growth increasingly shaped by demand for well‑located space, clear and visible value propositions, customer loyalty initiatives, operational efficiency, and advanced AI integration. By 2030, the global retail investment market is projected to reach $36.9 trillion.

Within this environment, KBS is focusing capital and concentrating risk in high‑conviction markets, places with the talent pipelines, infrastructure, and long‑term demand drivers capable of supporting value creation across a full real estate cycle, diversified tenant mixes, and active asset management focused on long‑term performance.

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