CRE valuation trends – Retail insights – Q1 2025

Retail real estate has faced tough stress tests over the past decade after weathering negative impacts from e-commerce, pandemic shutdowns, and rising interest rates. Altus Group data showing a positive trajectory for valuations is now bumping into tariff uncertainty that is clouding the near-term outlook.

Retail market data across the US, Canada and Europe reflects valuations that are moving out of a cyclical trough and back on more solid footing. However, the path forward is less certain following new US trade policy and tariff announcements. “With the tariffs and all of the uncertainty that’s happened globally, especially in the US, there are now a lot of questions around the potential impact on retail,” says Robby Tandjung, Altus Group Executive Vice President, Valuation Advisory.

How are tariffs likely to impact regional economies, inflation, consumer behavior, and consumer spending over the next six to 12 months? So far, data has been slow to emerge as consumers have been visiting shopping centers and increasing their purchasing to get ahead of tariffs. However, the overhang of uncertainty is weighing on decision-making among both investors and retail tenants, which has been magnified by historically low levels of consumer sentiment, although it rebounded slightly in June. According to the Michigan Consumer Sentiment Index, US consumer sentiment increased to 60.5 in June, which is an improvement from 52.2 in May and April and the first increase in six months. “The fundamentals are generally good, but the near-term uncertainty is creating a headwind that makes everyone pause,” says Tandjung.

Figure 1 – University of Michigan’s US Consumer Sentiment Index

Uncertainty is also fueling more defensive investment strategies. A common theme across regions is that investors continue to favor necessity retail, which includes grocery-anchored and supermarket retail. The big box space, the retail parks and warehouses category in Europe, and power centers in the US, have also held up relatively well as shoppers continue to lean into discount retailers for better values.

“There are different leads and lags between the US and Europe, but under the surface there are similarities in terms of necessity retail being the category that's really powering on,” says Phil Tily, Altus Group Senior Vice President, Head of Performance Analytics.

Retail data related to changes in valuation, cash flows, and yields for Europe is more muted than the US data. “The US retail market is further along in rightsizing itself more so than the European markets, which is why retail has been on a slightly stronger trajectory in the US than what we're seeing in Europe,” says Tily. US retail has also been buoyed by a consumer who has continued to spend, despite the decline in sentiment, whereas the European consumer tends to save more.

Another common theme across regions is that retail values have performed relatively well over the last three years compared to other property sectors. “The change in the interest rate environment caused less pain to retail than the other three major food groups in both the US and in Europe, because retail went through a pricing adjustment pre-pandemic due to competition from e-commerce,” says Tily. Altus market data provides further insights into current valuation trends on how retail is performing across regions relative to other property sectors, and also how different sub-sectors of retail are performing.

United States

The US retail market has benefited from strong consumer spending and limited new supply. Pent-up demand from pandemic shutdowns resulted in a boom in both sales and foot traffic following the reopening of stores and shopping centers. Landlords are seeing higher revenues where retail leases are generally tied to sales. “As retail markets have improved significantly since the pandemic shutdowns, landlords have been able to sign new and renewal leases at higher rents — often exceeding both existing contract rates and appraisers’ forecasted market rents. That’s been driving some of the returns in the US.”

The retail recovery in the US is slightly stronger than that in the apartment and industrial sectors. Appreciation returns turned positive in the US in Q3 2024, with an improvement of 0.5%, followed by 0.7% in Q4 2024 and 0.6% increase in Q1 2025.

Figure 2 – US valuation appreciation breakdown by sector

Source: Altus Group

In the US, grocery-anchored retail has remained a resilient segment of the market. Digging into individual sub-sectors, data also shows very strong numbers for the large super-regional malls versus regional malls that have experienced greater value correction. “The smaller malls are where there are still property-specific challenges hitting the retail sector, whereas the destination malls now appear to be on a firmer footing,” says Tily.

| Figure 3 – US valuation change by retail sub-sector

Source: Altus Group

Canada

Retail overall has been performing better than other asset classes over the last 12 months. Altus Group’s Q1 valuation data for Canada shows that, while retail values are still down 9.3% compared to pre-pandemic levels (Q1 2020), the sector has seen positive momentum over the past year with Q1 values that rose 0.74% compared to Q4 and 4.1% compared to Q1 2024.

Much like other regions, Canada’s retail market has gone through some tough times and transformation over the last decade. Now that weaker retailers have dropped out, what’s left are stronger operators that are driving stronger performance for retail landlords. “The COVID leases where retailers had a little bit of leverage over landlords are also rolling over, and now we’re seeing some strong performance in both rent growth and occupancy,” says Robert Santilli, Altus Group Director of Valuation Advisory.

Figure 4 – Canada valuation change by sector

Source: Altus Group

Necessity-based retail in particular has been a clear leader, including food-anchored retail, pharmacy and other everyday needs that remain well-leased. According to the Altus Group’s Canadian Investment Trends Survey Q1 2025, food-anchored retail centres are the most sought after property type by a wide margin. Investors like the stability in foot traffic and sales. The obstacle to investment is the limited inventory of those assets for sale.

The big retail news for the Canadian market is the final liquidation of Hudson’s Bay, Canada’s oldest retailer. The company announced in April that it would liquidate its remaining six Hudson’s Bay locations. All Hudson’s Bay, Saks Fifth Avenue, and Saks Off Fifth store locations closed on June 1. Combined, the store closings will bring an estimated 2% of retail space back to the market nationally. In some cases, landlords have been sitting on stores that weren’t paying a lot of rent and also had co-tenancy restrictions. So, the closings could open opportunities to create value for some landlords although significant investment will be required.

Over the past decade, Canada has been impacted by large store closings from Sears and Target. “There are a lot of holes within some of those secondary malls which has put downward pressure on valuations” says Santilli. “However, the class A malls are still performing well. So there's really a bifurcation between well-leased, well-performing assets and everything else.” What Canada is now facing is similar to what the US has also been facing with department store closings from Sears, Macy’s, and JCPenney, among others. One distinction for Canada is that it does not have the same level of overdevelopment that existed in the US market.

In the near term, investors are continuing to closely watch for tariff impacts on economic growth, inflation, and consumer spending. The Canadian consumer is especially vulnerable to higher costs as Canada has some of the highest consumer debt in the G7 countries. “Since the Global Financial Crisis, the Canadian household has really stocked up on debt, especially when compared to other countries,” says Santilli. “So the Canadian consumer is going to be under a lot of pressure with increasing prices related to potential trade tariffs.”

Europe

The retail recovery in Europe is not as strong as the US, but the sector did post modest growth in Q1. According to Altus Group’s Q1 2025 Pan-European valuation data set, retail values increased 0.5% over Q4 2024. Rising yields held back values for shopping centres in Q1, while declining yields and strengthening cashflows boosted values for high-street shops and supermarkets. Retail warehouses continue to be the top-performing asset within the sector over the past year, built on stronger cashflow fundamentals due to above average 4% improvements in market rents.

Over the past three years, retail assets have experienced a smaller decline in value compared to other sectors, as yields have already adjusted upwards primarily due to competition from e-commerce. “Retail didn't correct down as much as the other sectors during this period of value decline, but it’s also not yet firing on all cylinders” says Tily. The slowest gains are being reported by shopping centres, where investor caution is still evidenced by valuation yields continuing to move out in each of the last four quarters and cashflows gains that have been more muted over the last three years.

Figure 5 – Europe yield impact by retail sub-sector

Source: Altus Group

Figure 6 – Europe cash flow impact by retail sub-sector

Source: Altus Group

Figure 7 – European valuation appreciation breakdown by sector

Source: Altus Group

“Both the US and Europe have enjoyed stability and more positive adjustments around investor sentiment on pricing. But the US market has powered on more in terms of revenue strengthening, which is picked up in the cash flow due to market rates improving and rental growth rate assumptions strengthening,” says Tily. “While there's an upside there for Europe, it's just not as strong as some of the recovery aspects we're seeing in the other food groups.”

Key takeaway

The key theme across regions is the focus on defensive segments of the retail market, with grocery-anchored and necessity retail remaining in high demand. At the same time, different pockets of opportunities emerge when digging into individual markets, such as the strength of super-regional malls in the US and potential value-add opportunities related to the repositioning of empty Hudson’s Bay stores in Canada.

However, the bigger story remains the global uncertainty on how the US tariff policy is likely to impact local economies and consumer behavior. Although that uncertainty is not being reflected in market data, it is putting the retail market in a wait-and-see mode, and there is greater caution in decision-making from both retail investors and tenants. “When people don’t know what the rules are, it makes it difficult to plan, and that’s the big issue right now – uncertainty,” says Tandjung. “There’s more risk of executing today, and people are generally waiting for more clarity. There is no penalty for waiting”

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