'The Consumer Has Shown Up': Economic Forecast May Be Cloudy But Retail Is A Sunny Spot

With a new year underway and a new presidential administration at the helm, commercial real estate investors may wonder what’s in store for the economy and how the administration’s policies may impact their portfolios.

Jeff Rinkov, CEO of CRE brokerage Lee & Associates, said that the industry has its sights set on monetary policy, and is “cautiously optimistic” about interest rates continuing to decrease. This, combined with the administration’s support for fewer regulatory hurdles, could potentially spur more development and dealmaking opportunities.

As of January 2025, interest rates are at a range of 4.25% to 4.5% and are expected to continue decreasing throughout the year.

“There is capital that really wants to enter the market, so we’re likely going to start to see capital become more aggressive as we project lower interest rates in the long term,” he said.

Rinkov predicts that the U.S. economy will remain strong this year given the positive job reports and low unemployment rates. In January 2025, the U.S. brought forth 143K jobs and the unemployment rate was at 4%, down by 0.1% from the previous month.

He also credited the economy’s continued strength to the consumer’s enthusiasm to grab their credit cards and hit the shops.

“Our economy is reliant upon the strength and resilience of the consumer,” Rinkov said. “The consumer has shown up and shown their strength over the last few years. They decided they’re going to spend money and they are looking for experiential opportunities that cannot be found online.”

Lee & Associates’ fourth-quarter 2024 report stated that U.S. retail vacancy rates are at a record low of 4.7%. Lee & Associates Co-Managing Principal Daniel Dutton said he anticipates that low rate will continue throughout 2025.

Lee & Associates’ report also found that when it comes to retail, location is everything, and tenants — particularly smaller boutiques — are fighting for space. 

“Competition is fierce in the small shop space,” Dutton said. “If you're a tenant who needs a small space anywhere between 1.5K to 3K SF, it can be a real challenge. Working with an experienced broker will help you find those locations.”

Dutton said that despite the sector desiring new construction on large developments, it will likely see more construction for single or double-tenant spaces and small strip centers. 

Another major retail trend is the use of artificial intelligence, especially to elevate the customer’s shopping experience. Dutton said AI is helping tenants connect with customers by using data to track shopping patterns and make predictions, such as what time of day customers prefer to purchase certain kinds of foods. AI may use those patterns to target the consumer through ads even before they decide to make their purchases, he said.

While it’s too early to know the full impact of AI on CRE, it can also help retail investors produce lease abstracts quickly, which can help them keep critical information from the lease on the radar, expediting the decision-making process, Dutton said.

He predicts that AI will continue to advance and, down the line, it may even be able to help investors predict how well an asset may perform in a particular location.

Rinkov said he anticipates smoother property sales with the help of AI. For now, the industry is in a waiting game to see how these trends will unfold.

“It’s hard to be too tied to something that we don't have control of, such as interest rates or AI, but it seems like all of the other elements of a very fluid market are present,” he said.

This article was produced in collaboration between Lee & Associates and Studio B. Bisnow news staff was not involved in the production of this content.

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