The retail closures in the headlines for months now are finally having an impact on the overall U.S. retail market, with fundamentals notably softening, according to JLL's Q2 2018 Retail Outlook. Major metros in general are moving from a cyclical peak to a falling retail market.

As stores close — more than 2,500 during the first half of this year — net absorption is being impacted, the report says. During the second quarter, absorption of retail space was still positive nationwide, a total of 8.7M SF.

But that figure represents a significant slowdown in the pace of retail absorption, with declines of 45.2% compared with Q1 and 59.4% compared with a year earlier.

Malls and power centers saw negative absorption compared with the previous quarter and year. During the second quarter, net absorption at malls was negative 2.1M SF and vacancy jumped from 3.7% in the first quarter to 4% in the second.

These figures weren't a surprise, considering that 130 department stores, mostly Sears and Bon-Ton, closed during Q2.

The report was more sanguine about other aspects of the sector. Construction is slow and rents are still growing. Rents are now more than 3.5% higher than their pre-recession peak at the beginning of 2008, the report says.

Also, some malls — a category that includes lifestyle centers, regional and super-regional properties — aren't doing badly at all.

Strong malls in top locations not only have less exposure to closing retailers, but tend to fill vacant space much faster and more profitably than average properties, JLL reported.

The ease at which properties find tenants to fill vacant spaces depends on the quality of the location. The report, citing CoStar data, says that about 70% of the best locations had vacant space re-leased within a year.

What is going to happen to the current wave of vacant retail space? Three main outcomes, according to JLL: re-leasing by retailers, re-leasing by non-retailers or demolishment.

There will be some demand for vacant space in the coming years, especially as online players open physical stores, such as mattress retailer Casper, women's intimate apparel specialist Adore Me or men's apparel purveyor Untuckit.

Non-retail tenants, including food and beverage, salons, movie theaters, fitness centers and medical clinics, are on the rise in former retail space as well. The report, citing ICSC data, noted that non-retail space in shopping centers increased from 19.2% in 2012 to 23.1% this year.

Investors are still on the hunt for retail assets, but they are much more selective these days, the report says. Star assets in top markets are sought after, while secondary and tertiary markets are seeing fewer deals. Grocery-anchored centers are still at the top of the list for retail investors.