Retail occupancy holds firm but tenant resistance is capping rent growth, CoStar finds
Annual asking rent growth for US retail properties slowed to 1.6% in the third quarter of 2026, its weakest pace since 2017, according to CoStar. Retail loan originations and CMBS loan performance improved over recent months.
The figures put slower rent growth alongside higher borrowing costs for retail owners seeking new loans or refinancing. National rent growth fell from 2.3% in the second quarter and from 2.9% one year earlier.
The 10-year Treasury yield reached 5.36% on October 7, its highest level in 24 years. Xander Snyder, principal commercial real estate economist at First American, said inflation and material expenses both affect a property’s income. The cash flow a building generates affects the debt service a borrower can place.
About 17% of the $5.0 trillion in outstanding commercial mortgages, or $875 billion, were set to come due in 2026, according to a Mortgage Bankers Association survey released in February.
Snyder said refinancing has more of a tailwind than sales because borrowers “can’t choose for these contractually obligated dates to go away.”
The 10-year yield has climbed roughly 100 basis points since the end of 2025, a move that has left many deals that looked viable a year ago impossible to execute. In a recent interview with Mortgage Professional America, Peachtree Group CEO Greg Friedman said, “It’s more of a balance sheet issue across commercial real estate because commercial real estate is so sensitive to movements in long-term rates as well as even short-term rates.”
Tenants hold the line on rent
Brandon Svec, national director of retail analytics at CoStar Group, said tenant finances now limit how far landlords can raise rents.
“Tenant economics have increasingly set the ceiling on rent growth,” he said.
According to Svec, retailers face elevated operating costs and have become more selective with their expansion plans. He said tenants “have grown increasingly resistant to additional rent increases, particularly in discretionary categories where sales growth has not kept pace.”
Occupancy stays firm
The rent slowdown has not followed a drop in demand.
“The continued moderation in asking rent growth comes despite a second consecutive quarter of solid demand,” Svec said.
Retail net absorption totaled 10.2 million square feet in the second quarter of 2026, up from negative 4.5 million square feet in the first quarter, according to JLL’s analysis of CoStar national index data.
CoStar’s May forecast projected that national retail vacancy would peak in the mid-4.4% range before tightening in 2027. It expected net absorption to average 4 million to 5 million square feet per quarter in the second half of 2026.
National market asking rents stood at roughly $26 per square foot in the third quarter, based on CoStar’s Retail National Index Markets.
Annual rent growth peaked at just above 4% in 2022 and has declined since, with the sharpest drops over the past two quarters.
Lenders stay active in retail
Retail led all property types in the MBA’s second-quarter 2026 originations survey with a 61% year-over-year increase in dollar volume, while total commercial and multifamily originations rose 16%. The MBA’s February forecast projected $805.5 billion in total origination volume for 2026.
Retail CMBS delinquency also improved. Trepp’s retail rate fell 62 basis points to 6.58% in September, the only major property type to decline. The overall rate rose to 8.02%, its highest level since November 2020.
Every format slows
Every major retail format posted slower rent growth than a year earlier. Power and neighborhood centers recorded roughly 2.4%, while strip centers and malls posted about 1.7%.
General retail properties, which make up the largest share of inventory, slowed to roughly 1.0%.
Midwest metros post the largest gains
Among markets with at least 100 million square feet of retail inventory, Cincinnati recorded the fastest annual rent growth at 6.2%. Nashville followed at 5.3%, and Charlotte placed third at 5.0%.
Northern New Jersey posted 4.8%, Milwaukee 4.7%, Columbus 4.5% and Phoenix 4.2%. Baltimore reached 3.8%, while Norfolk, San Antonio and Jacksonville each posted 3.7%.
Minneapolis registered 3.5%, Washington and St. Louis each came in at 3.3%, and the Inland Empire rounded out the top 15 at 3.1%. Five of those markets are in the Midwest, namely Cincinnati, Milwaukee, Columbus, Minneapolis and St. Louis.
Rents declined in two of the large markets CoStar tracked. Pittsburgh recorded an annual decline of 1.4%, and San Diego followed at negative 1.3%.
