Mall Decline and Emerging Opportunities for Small Businesses
The decline of American malls and shopping centers is reshaping commercial real estate dynamics, creating a more accessible environment for small businesses seeking physical storefronts. As national vacancy rates in retail properties rise, local entrepreneurs are finding previously unattainable prime locations with more favorable leasing terms. Kimberly Blair, a wellness practitioner from San Diego, exemplifies this trend. Facing increased demand for in-person grief counseling amid widespread virtual fatigue, she successfully negotiated a prime retail space with flexible lease conditions, improving service outcomes and business competitiveness.
Rising Vacancies and Softening Demand in Retail Real Estate
According to Cushman & Wakefield’s Q2 2025 report, the national vacancy rate for shopping centers increased to 5.8%, marking a 20 basis point rise from the previous quarter and a 50 basis point increase year-over-year. This trend reflects a broad softening in demand, driven by persistent store closures and rising tenant cost pressures. James Bohnaker, senior economist at Cushman & Wakefield, notes that while rental rates continue to rise, the pace has decelerated from 4% growth post-pandemic to approximately 2% currently. This convergence of higher vacancies and slower rent growth is creating openings for non-traditional tenants, including medical offices and wellness spas.
Flexible Leases and Growth of Local Businesses
The evolving retail landscape is fostering flexibility in lease agreements. Teresha Aird, co-founder of Offices.net, highlights an increase in short-term leases, partial fit-outs, and rent concessions, enabling small businesses to enter prime locations without long-term commitments. These arrangements allow startups and service providers to test physical retail presence while managing costs. Local businesses are also redefining retail spaces left vacant by national chains. Andy LaPointe, owner of Traverse Bay Farms in Michigan, emphasizes how small enterprises transform these locations into community-centric destinations offering unique experiences beyond typical retail.
“When a national chain leaves a space, it isn’t just a gap; it’s a canvas for a small, local business to create something lasting.” — Andy LaPointe, Traverse Bay Farms
Geographic Variations in Leasing Opportunities
Experts caution that the availability and terms of retail space for small businesses vary significantly by region. Andrew Spatz, a commercial real estate attorney, contrasts markets like New York City, where demand remains high and space is competitive, with mid-sized cities and inner-ring suburbs where vacancies have created openings for smaller tenants. Jacob Naig, a broker in Des Moines, Iowa, shares that landlords in his market prefer to keep spaces occupied and offer rent reductions and tenant improvement incentives to attract local businesses, a scenario uncommon five years ago.
Landlord Strategies and Risks in Leasing to Small Businesses
Landlords face a delicate balance between maintaining occupancy and managing risk. Marc Norman from NYU notes that many shopping centers seek “credit tenants” — large chains with strong financial guarantees — but such tenants are increasingly scarce. The high failure rate of small businesses, with over half closing within six years according to FTI Consulting’s Glenn Brill, contributes to landlord caution. As a result, many prefer to hold out for full-market rents from stable tenants rather than quickly filling vacancies with smaller operators. Nonetheless, strip malls with smaller units present more viable opportunities for small businesses, particularly if local economic conditions support retail activity.
FinOracleAI — Market View
The ongoing decline of traditional mall anchors is shifting the commercial real estate landscape, fostering new possibilities for small and service-based businesses to access retail space at more flexible and affordable terms. This structural change, driven by rising vacancies and slower rent growth, signals a potential renaissance for local entrepreneurship in physical retail.
- Opportunities: Enhanced lease flexibility, rent concessions, and short-term agreements facilitate small business entry.
- Risks: Geographic disparities and landlord risk aversion may limit access in high-demand markets.
- Market Dynamics: Rising vacancies and slower rent inflation create a buyer’s market for commercial tenants.
- Consumer Trends: Demand for unique, community-oriented retail experiences favors local operators.
- Landlord Strategies: Balancing occupancy with tenant quality remains critical amid uncertain retail demand.
Impact: The softening retail real estate market is broadly positive for small businesses seeking physical locations, although success depends on local market conditions and landlord willingness to offer flexible terms.
