Retail Real Estate Leads CRE Asset Classes in 2026 Despite Tariffs and Iran War, CoStar Data Shows
U.S. retail real estate has emerged as one of the strongest commercial property asset classes in 2026, with vacancy rates near historic lows even as tariffs, rising fuel costs, and sinking consumer confidence pose mounting headwinds. CoStar data cited by Voit Real Estate Services shows retail vacancy expected to peak at approximately 4.4% this year — well below the 14% vacancy rate recorded for office real estate, 7.5% for industrial real estate, and 8.5% for multifamily real estate, according to a recent CoStar press release.
Retail Real Estate Vacancy Near Historic Lows as New Supply Contracts
A key driver of the tight retail market is constrained new supply. According to CoStar, 64.2 million square feet of retail space was under construction in the U.S. in the first quarter of 2026, down from approximately 70 million square feet a year earlier and well below the 10-year average, which consistently exceeded 90 million square feet during the last expansion cycle.
"The pullback in construction reflects a development environment that remains difficult to pencil in most markets," said Brandon Svec, national director of retail analytics at CoStar Group. "The sharp rise in land prices, construction costs, and interest rates over the past several years has pushed required rents well above prevailing market levels for many retail formats."
CoStar projects vacancy will edge slightly higher after peaking in 2026, then stabilize and tighten gradually in 2027.
Service-Oriented Tenants Drive Retail Demand, Outpacing Goods Retailers
Demand for retail space is being driven primarily by grocery, discount, value, and service-oriented tenants, as well as the growing medtail sector — a term describing healthcare and wellness services integrated into traditional retail environments. According to CoStar data reported by CRE Daily, just over half of all retail square footage leased in 2025 went to service-oriented businesses, up from 40% fifteen years ago.
Wellness and fitness have emerged as leading sectors within the service tenant surge. The U.S. wellness market reached $2.1 trillion in 2024, driven by demand for services ranging from salons and boutique fitness studios to facials and personal care. Fitness operators now account for nearly 30% of service-based leases, up from 20% in 2016, according to the Voit Real Estate Services market commentary.
The medtail segment is also expanding. A National Association of Realtors article cited in the Voit analysis attributes the growth to an aging population, increased consumer demand for convenience, and heightened competition among healthcare systems. Urgent care operators — including American Family Care, CareNow, Concentra, and GoHealth — are capturing consumers seeking alternatives to hospital emergency rooms.
E-commerce growth has also reduced the need for physical retail space to sell products, according to the Voit Real Estate Services commentary, contributing to the shift toward service-based tenants.
Tariffs and Rising Fuel Costs Cloud the Outlook for Retail Real Estate
Despite the sector's relative strength, Voit Real Estate Services analysts and market observers have flagged several external pressures that could weigh on retail performance in the months ahead.
On tariffs, Spencer Kerrigan, Vice President and Partner in the Voit Real Estate Services San Diego office, noted: "Consumers have continued to experience high inflation, and the cost of everyday goods has risen. With the recent spike in oil prices, not only have transportation costs increased, but also the cost of manufacturing many goods has climbed due to the widespread use of petroleum-based inputs."
Research by the Harvard Business School, which tracked pricing on 350,000 goods, estimated that prices for imported goods rose by 5% since March 2025 and 2.5% for domestic goods. When compared against pre-tariff deflationary trends in 2024, the impact is larger: imported goods are 6.6% more expensive, while domestic goods are approximately 3.8% more expensive. Consumers are experiencing price increases on electronics, clothing, and food categories including coffee, olive oil, and some produce.
A report from the Labor Department's Bureau of Labor Statistics showed import prices increased 1.9% in the most recent monthly reading — the largest gain since March 2022 — following a 0.9% rise in March. In the 12 months through April, import prices rose 4.2%, the largest year-over-year increase since October 2022.
Gas Prices Surge More Than 50% Nationally Since Iran War Began
Fuel costs have added another layer of pressure on consumers and retailers alike. Before the war with Iran began in late February 2026, the national average price for a regular gallon of gasoline was approximately $2.98, with California averaging $4.75 per gallon. By Memorial Day, the national average had climbed to $4.507 per gallon, while California reached $6.116 per gallon — the highest in the nation, according to AAA. That represents an increase of more than 50% nationally and nearly 30% in California.
The Voit Real Estate Services analysis notes that higher oil prices ripple through the broader economy via increased freight and shipping costs, higher production input costs for plastics and chemicals, and elevated expenses for cargo ships, delivery fleets, airlines, and package carriers — all of which can translate into higher prices for consumers.
Consumer Sentiment Hits All-Time Low, Raising Questions for Retail's Next Chapter
Consumer confidence has deteriorated sharply alongside rising prices. The University of Michigan's consumer sentiment index fell to 44.8 in May 2026 — the lowest reading since the index began in 1957.
"The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month," said Joanne Hsu, director of the university's Surveys of Consumers. "Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run."
The Voit Real Estate Services commentary notes that a potential end to the Iran war could ease fuel costs and help calm inflation expectations, but would not eliminate the pressure from tariffs or the broader squeeze on household budgets. Retail real estate has demonstrated resilience through the first half of 2026, but the sector's trajectory may depend on whether easing geopolitical risk can offset the more persistent drag from pricing pressures and weakening consumer sentiment.
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