“We’ve seen balanced supply chains and value-oriented spending dominate as discretionary purchases decline,” she says, while noting that there will likely be Federal Reserve rate cuts and interest rates are projected to be above pre-pandemic levels in 2025.

Larson adds that as this year wraps up, Colliers expects holiday spending growth to be 2.9%, with brick-and-mortar stores remaining pivotal with 92% of shoppers visiting physical locations, underscoring the model’s importance.

“Adding to our year-end forecast, experiential shopping and dining out resonate strongly with Gen Z and Millennials, which enhances seasonal retail activity.”

Retail’s Challenges Aren’t Slowing Investor Interest
Looking ahead, retail is expected to be hindered by limited site availability and skyrocketing occupancy, yet investors are still bullish on the sector, according to Solanki.

“Even though there’s an anticipated closure of more retail locations than openings, occupancy rates hit a decade-high of 95.6% in 2024,” adding that high construction costs are 30-40% above pre-pandemic levels, challenging new developments.

“For retailers, practical technology investments in warehouse automation and omnichannel strategies take precedence,” says Solanki. Supply chains could be kept nimble through local manufacturing models and leveraging blockchain for better traceability, but , she says, institutional investors are still expected to increase their focus on retail assets in the coming year.

Tariffs, Shifting Consumer Spending Cause Uncertainty, Slow Down Retailer Expansion
Frequently debated in 2024, tariffs on imports promoted by the incoming presidential administration are expected to raise consumer goods prices significantly, which could reduce spending power by up to $78 billion annually. Additionally, proposed immigration restrictions could tighten labor markets and raise costs for retailers.

“Consumers are already cautious about finances, with record credit card debt and rising interest rates. The impact of tariffs and rising costs could shift spending priorities toward essential items,” notes Larson. However, tailored promotions and AI-driven shopping solutions could sustain spending. And if grocery inflation impacts persist, consumers may spend more while cutting discretionary purchases.

The rocky outlook still points to steady spending as demand balances between essentials and experiential purchases, says Solanki, but retailers will need to strengthen their resolve.

“Retailers must prioritize consumer motivations, data-driven strategies and personalized promotions to maintain competitiveness in the year ahead.”

For more insights and thought leadership from Colliers, click here.