U.S. store closings have surged in recent months compared to last year while openings have slowed slightly. But retail real estate professionals remain upbeat on the industry going into the last half of 2024, saying they see few signs the sector is about to enter another retail apocalypse.

Their bullishness comes as several retailers have made national headlines — including Macy's, Family Dollar, Express and, most recently, designer clothing and accessories brand Ted Baker — when they announced plans to shutter what amounts to hundreds of stores.

Nonetheless, brokers and landlords, who are gathering in Las Vegas for the annual ICSC trade group conference this week, said that retail's big problem is not having too much empty space, but rather too little.

The overall U.S. retail vacancy rate is a tight 4.1%, according to JLL, citing CoStar data. Several brokers said they aren't worried about "backfilling," or leasing, vacant stores as they are about finding desirable space. And with much of the new space under construction already pre-leased, demand is outstripping supply.

"Retail availability is hovering near record lows, putting a ceiling on leasing activity," JLL said in its first-quarter retail report. "There are just over 50 million square feet of retail space under construction, with over 70% pre-leased. Given that construction starts remain low, limited supply will remain a central issue for retail in coming quarters."

Announced U.S. store openings so far this year stand at 3,749, down about 4% from the prior-year period, according to Coresight Research. In turn, 3,234 store closures are planned, up roughly 24% compared to the same period last year, Coresight said. Nonetheless, store debuts are still outpacing closures, several brokers pointed out.

"So there's going to be demand for that space. ... I do think this is the third year in a row that we're going to open more stores than we're going to close," Barrie Scardina, president of Americas Retail Services, Agency Leasing and Alliances at Cushman & Wakefield, told CoStar News. "Our vacancy rate is still very low. ... Rents are pretty much at historical highs. And the southern states — the smile states from the Carolinas to Southern California — are very, very, very strong."

There's a horde of potential tenants vying for empty retail space, according to brokers and retail analysts. A group of varied chains are expanding and hunting for new store locations, including Burlington Stores, Ross Dress for Less, T.J. Maxx, HomeGoods, Aldi, Hobby Lobby, Five Below, Dollar General, Barnes & Noble, quick-service and fast-casual restaurant chains such as Chipotle and WingStop, and ethnic grocers serving the Hispanic and Asian communities like H Mart.

In addition to that assortment, nontraditional retail space users, such as so-called experiential operators, are out looking for locations. In one case, streaming giant Netflix chose a vacant Lord & Taylor for the home of its first brick-and-mortar entertainment venue, called Netflix House, at the King of Prussia mall in Pennsylvania. Schools have leased space at malls across the nation. Pickleball courts are sprouting up at shopping centers and malls, as are healthcare facilities, fitness centers and coworking space.

"There's tons of demand," said Chris Maguire, CEO of Dallas-based SRS Real Estate Partners. "And you'll hear that from probably anyone you talk to. Nobody is really worried about the good real estate. The stuff that's not good, different ballgame."

However, there are members of the retail industry who said there will be challenges to filling some of the stores that are going dark, despite retail's low vacancy rate. Department store chain Macy's will be closing 150 underperforming stores in the next few years, which will impact the malls where they are anchors, according to JLL.

While high-quality Class A malls have seen their popularity with retailers spike, lower quality Class B and Class C malls are struggling and may have trouble finding replacements for apparel seller Express, which is shuttering just over 100 stores, and Rue21, which is pulling the plug on all 540 of its locations, many brokers said. Vacant stores of Bed Bath & Beyond, which closed last year, and Stein Mart, which shut down in 2020, are still not all leased up.

“The pipeline of incoming tenants is not quite as healthy as it used to be, but isn’t necessarily unhealthy," Neil Saunders, managing director and retail analyst at GlobalData, told CoStar News. "It’s less diverse, and smaller brands aren’t expanding in the way they once did, but there are still a lot of brands looking to expand their store footprints. ... With Home Goods and Nordstrom Rack still both expanding, we’re seeing a pattern with off-price players doing incredibly well."

Garrick Brown, vice president of real estate intelligence and business development at Gallelli Real Estate, also raised questions regarding the pipeline of new stores.

“There are a lot of concepts that opened this year with aggressive growth plans on the table, but that’s beginning to slow, certainly because of the time it takes to get deals done, and there might be some cautiousness over how long consumers can still spend,” Brown told CoStar News. “Dollar stores had about eight years in a row of rapid store openings, and the truth is, when you’re opening 1,000 new stores a year, it’s hard to do the proper due diligence. Now a lot of them are reviewing their portfolios and are getting rid of the dead wood."

Dollar Tree earlier this year said it would be closing about 1,000 of its Family Dollar stores in the next few years. On the flip side, its competitor Dollar General plans to roll out about 800 new stores this year.

Several brokers and analysts said that how quickly a vacant store is leased simply depends on whether it's in a good location or not and the market, or what's known in the industry as a retail trade area. Also, every individual case will be different, they said.

"Landlords will struggle to lease the space if the location isn’t good, but that’s nothing new and has always been the case in retail," Saunders said. "Vacancy rates are low, but that doesn’t mean there are no vacancies.”

Potential retail tenants have to take into account whether a trade area is growing demographically or declining, for example, when considering filling a chain's vacancies according to Meghann Martindale, principal and director of retail market intelligence at Avison Young.

"What I always tell people now is when you're looking at these stores and the locations, you have to put on more of a real estate hat than just a retail hat. ... The locations of all of those different stores are vastly different," she told CoStar News. "There's no one-size-fits-all solution anymore."

Like the Express closings, Macy's planned store shutterings "will put additional pressure on mall performance," according to JLL's report. The New York-based firm made headlines in February when it announced it would close 150 underperforming stores in the next three years and sell off some real estate.

"As Macy’s exits, the question emerges of what will happen to these vacant anchor spaces," JLL said in its report, adding retailers that have filled empty Macy’s spaces include home furnishings stores Arhaus, Crate & Barrel and RH; experiential tenants Bowlero, Life Time Fitness and Surge Adventure Park; and other retailers such as Uniqlo, Hobby Lobby and HomeGoods. "In some cases, multiple tenants occupy the vacant space," JLL said.

Malls, where Macy's anchors are located haven't been performing as well as other retail sectors. Their vacancy rate, at 8.6%, is double the national average for retail, according to JLL.

Macy's has retained Maguire's SRS Real Estate to market some of its U.S. properties that are on the block, including six stores in Texas, and one each in Alabama and Georgia. Before that assignment, the firm began marketing a former Macy's at Southwest Plaza at 8501 W. Bowles Ave. in Littleton, Colorado.

"The interest in those stores has been robust," Maguire said. "And it's from a lot of different users ... [including] developers that might have other uses in mind, whether that be residential or, you know, cutting up those boxes into multiple retail stores."

He cited the chains that are expanding and looking for space, like off-price king TJX Cos. — parent of T.J. Maxx and HomeGoods — Ross, Five Below and Burlington.

"These guys are doing hundreds of stores, but not doing them in new centers, and there's two reasons," Maguire said. "One, developers haven't been building. Two ... now with interest rates at all-time highs and construction costs that are so stubborn and won't come down, it's just been an affordability issue."

But Saunders expressed some skepticism on the prospects for Macy's stores when it comes to re-leasing them, because of their large size.

"Most department store spaces are huge and not easily configured," he said. "You’d need a retailer to take a huge amount of space, and there aren’t many of those. There are even some Sears stores that are still vacant because no one wants them.”

Nonetheless, Scardina said that up-and-coming experiential retailers and discounters are interested in big box spaces. Even Dave & Busters, the gaming and restaurant chain, has taken over former Sears and Dillard's locations, according to Scardina.

U.S. store closings are "starting to add up a bit" this year, Brandon Isner, CBRE's head of retail research for the Americas, told CoStar News.

"But that doesn't change the fact that the strongest centers and the strongest trade areas are still going to be in demand," he said.

Isner has also been following the quarterly earnings reports for many retail real estate investment trusts, and they have posted strong results, for markers like leasing, indicating the strength of the sector.

Discounter 99 Cents Only Stores, based in Commerce, California, last month announced it was closing all 371 of its stores, which are located in the Golden State as well as Texas, Arizona and Nevada. The retailer, which subsequently filed for Chapter 11 bankruptcy protection, already has buyers — and occupiers — for some of its locations.

"If you think about 99 Cents stores, especially the newer 99 Cents, they're actually located in pretty good locations with ample parking, high visibility, easy accessibility — corner lots, corner pads," Anjee Solanki, national director of retail services at Colliers, told CoStar News. "Those are going to go very quickly."

Ollie’s Bargain Outlet has already agreed to buy 11 of the 99 Cents Only's leases and owned stores in Texas, according to court documents. And Dollar Tree wants 58 of the discounter's stores, Bill Read, executive vice president at Retail Specialists, posted on LinkedIn.

"Demand for space is hot," Read wrote.

Still, filling the vacancies of bankrupt retailers takes time. Bed Bath & Beyond, which closed all its stores a year ago, was known in the real estate industry for having attractive locations. Even so, of the 724 former home goods stores Retail Specialists is tracking, just 290, or 40%, have new tenants.

Bed Bath & Beyond offers a case study of who is taking over bankrupt retailers' space. Apparel sellers lead the pack, with Burlington snapping up 75 locations, followed by Nordstrom Rack with 12, Ross with nine, and Sierra Trading with six, according to Retail Specialists.

Department store chain Stein Mart closed all of its 280 stores in 2020, throwing 10 million square feet of retail space on the market. So far 218, or 78%, of those spaces have been re-leased, according to Retail Specialists. As with Bed Bath & Beyond, apparel retailers top the list of taking Stein Mart spaces, Retail Specialists said in its report.

Express has filed for Chapter 11 bankruptcy protection in addition to announcing some store closures. Its store vacancies should find takers, according to Solanki.

"Express actually has done a very good job in terms of their site selection within malls," she said. "They're in good good locations. ... So I think those are going to definitely go fast."

But Saunders said backfilling vacant locations of chains such as Express could be tough even at strong retail properties.

"The reason [Class A malls] haven’t filled some of their spaces is because the people who would go into those vacancies are already in the mall somewhere else," he said. "All of the companies that are expanding are in there already, so unless they want to relocate to a better space, it’s difficult to fill that vacancy because who do you put in there that you haven’t got already?”

Expansion isn't an option, it's a mandate, for some retailers, no matter the constraints on availability. Those that are publicly traded are often under pressure to grow their businesses by opening more stores, according to Isner.

"Let's face it, you know, a lot of the companies that are public, they need to expand to make their shareholders happy," he said. "So they can't just decide not to expand."

At least one industry analyst suggested the need for more retail space is imperative.

“We’ll need more square footage or the market will get too tight," said Michael Berne, president of MJB Consulting. "We don’t want to be in a position where vacancy falls to 2% or 3% because then it puts everything out of whack and it gets to be too much of a landlord’s market. I don’t know if we’re there yet, but we aren’t far from it and we’re far closer than anyone would have thought we would be even a few years ago.”

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