Demand for smaller shopping centers surged in the last quarter, with absorption jumping 20% to 8.1 million square feet in Q3.

According to research from JLL, absorption for smaller centers totaled 35.6 million over the last 12 months, with sporting goods brands, off-price retailers like TJ Maxx and Marshalls, and home improvement retailers responsible for several large move-ins.

Vacancy for such spaces currently stands at 5.6%, with 11.3 million square feet under construction as of the end of Q3, per CoStar data. This was "helped by 3.7 million square feet of demolished space in the last 12 months," according to JLL. Around 1.2 million square feet of new space was delivered in the third quarter.

In addition, analysts say small F&B tenants like Crumbl Cookies and Jersey Mike's, cosmetic and beauty retailers, and other local tenants drove move-ins for smaller spaces. The average size of signed leases for community and neighborhood centers fell 5.1% and 3.5%, respectively, according to the JLL report, while average strip center lease sizes increased 3.4% from the previous quarter.

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