MARKET ENDS 2025 ON POSITIVE NOTE DESPITE HEADWINDS
Vacancy for shopping center space in the Sacramento region stood at 7.3% as of the end of Q4 2025, down slightly from last quarter’s revised reading of 7.5% and from the 7.5% rate that was in place exactly one year ago.
Despite persistent macroeconomic headwinds and an uptick in retailer bankruptcies and closures in 2025, shopping center vacancy decreased over the past year in the Sacramento region. The market recorded 192,000 square feet (SF) of positive net absorption in Q4, reflecting the sixth consecutive quarter in which occupancy levels increased across the marketplace. All told, the Sacramento market recorded 369,000 SF of positive net absorption in 2025. This is up from 231,000 SF in 2024 and reflects the strongest year of occupancy growth that the market has experienced since 2022 during the postpandemic retail rebound the market recorded 415,000 SF of positive net absorption.
Though smaller deals of 5,000 SF or less continue to dominate leasing activity (Costar estimates this number to be 90% nationally), the Sacramento region has experienced an uptick in larger deals of 20,000 SF or more in the past year. Grocery stores, fitness concepts and offprice apparel players have all been active.
The market continues to backfill former drug store space at a steady pace, with most of these vacancies landing tenants within 12 – 18 months. Since 2023, the bankruptcy and liquidation of Rite Aid and the ongoing downsizing of both CVS and Walgreens has returned roughly 20 drug stores to market in the greater Sacramento region. More than half have since been backfilled, with Grocery Outlet, Ross Dress for Less, Skechers, and Dollar Tree among the tenants that have been taking this space locally.
Meanwhile, QSRs continue to be among the most active space user categories, despite some churn. While we have seen recent closures from a few legacy chains in the region (Wendy’s, KFC, Pizza Hut, Noodles & Company, Five Guys, Rubio’s Coastal Grill, Costa Vida Fresh Mexican Grill and Subway among others), a new round of players (Chick-fil-A,
Raising Cane’s, Chipotle, Panda Express, Dutch Bros.) have all been actively taking space. Fitness concepts also continue to be active in the Sacramento region with 24 Hour Fitness, Crunch Fitness, Planet Fitness, Chuze Fitness, Club Studio among the larger format users, while we also continue to see movement from smaller (<10,000 SF) players as well. But we also continue to see some of the most aggressive growth coming from concepts that weren’t even considered retail space using categories just a few years ago. Aesthetics/ MediSpa concepts, cannabis dispensaries, car washes, urgent care, or quasi-medical and veterinary hospitals all remain highly active.
Over the course of 2025, these tenants kept the Sacramento shopping center market in the black, despite the continued uptick in bankruptcies and strategic closures. The question going forward is whether this trend will persist in the year ahead.
FIRST, THE BAD NEWS…
As this report went to press, Fat Brands filed Chapter 11. The parent company of Fatburger, Round Table Pizza, Marble Slab Creamery, Johnny Rockets, Hurricane Grill & Wings, Ponderosa, Bonanza, Great American Cookies, Elevation Burger, Buffalo’s Café, Twin Peaks, Hot Dog on a Stick, Pretzelmaker, Fazoli’s, Native Grill & Wings, Smokey Bones, and Yalla Mediterranean had aggressively acquired most of these franchise-driven concepts in the past few years. But they incurred more than $1.4 billion in debt in the process that eventually led to this moment. The good news is that only 8% of the roughly 2,300+ units they operate across their portfolio are corporate owned (and potentially in danger of being closed). The remaining franchises in their system will not be directly impacted by this filing, though we anticipate it likely that many of these banners may be sold off in the bankruptcy process.
This announcement came on the same day that Amazon announced that they were closing their remaining 15 Amazon Go and 57 Amazon Fresh stores across the country. Amazon Go does not have a local presence, but there are currently three Amazon Fresh stores slated for closure in the Sacramento region: Elk Grove, Roseville and Citrus Heights. In announcing the closures Amazon said, “we haven’t yet created a truly distinctive customer experience with the right economic model needed for large-scale expansion.” It also came as news broke that Eddie Bauer’s parent , Catalyst Brands, was likely to file bankruptcy in February as part of a move to close all of their North American stores and go 100% online.
This follows the January 2026 news of mall retailer Francesca’s announcement it was going out of business and closing all its roughly 400 stores nationally, including units locally at Arden Fair Mall and Westfield Galleria at Roseville. Saks Global also filed Chapter 11 in January 2026 and is likely to close a substantial number of their Saks Fifth Avenue and Neiman Marcus banners.
This bad news follows a spate of bankruptcies and closures over the past year. American Signature Furniture, At Home, Bargain Hunt, Bravo Brio, Restaurants, Claire’s/Icing, CMX Cinemas, The Container Store, Forever 21, Hooters, Joann Fabrics, Legacy Toys, Liberated Brands (Quiksilver, Billabong, Volcom, et al), On the Border, Pinstripes, Rite Aid, and Value City Furniture were among the larger chains that filed bankruptcy in 2025—with many of these liquidating.
We also saw an uptick in strategic closures over the past year with dozens of (mostly) legacy chains shuttering underperforming locations with Advance Auto Parts (+/- 700 stores), GameStop (-475 stores) and Starbucks (-450 stores) among the chains closing the most units.
Entering 2026, this trend appears to be far from over. Retail credit monitoring company Pulse Ratings reports an increase in general risk across the industry, with their current bankruptcy watch list now at its highest level since the pandemic. According to their most recent Retail Credit Watch Report (January 2026): “Macroeconomic pressures, including tariffs, continue to strain the operating models of many retailers.” Their bankruptcy watch list includes any chain with a credit grade of D or below according to their scale. Currently the major national chains on their list include:
• Children’s Place (E-)
• Leslie’s Poolmart (E-)
• MEC (E-)
• Backcountry (E)
• Gabe’s (E)
• Big 5 Sporting Goods (E)
• P.F. Chang’s (E)
• Brand House Collective (i.e. Bed Bath & Beyond & Former Kirkland’s) (E+)
• Save-A-Lot (E+)
• Cato (E+)
• J. Crew (D-)
• Designer Brands/DSW (D-)
• AMC (D-)
• Eddie Bauer (D-)
• Regis (D-)
• Sportsman’s Warehouse (D-)
• Tilly’s (D)
• Staples (D)
• Bass Pro (D)
• Lucky Strike (Bowlero) (D)
• Harbor Freight (D)
• Camping World (D)
• Dave & Buster’s (D)
• Red Robin (D)
It is important to note that inclusion on a bankruptcy watch list does not necessarily mean imminent doom—Rite Aid was on the Standard & Poor and Moody’s watch lists for nearly 25 years before they went bankrupt and chains improve their credit ratings all the time. But the data currently suggests that 2026 chain bankruptcies and closures are likely to remain elevated.
BUT NOW THE GOOD NEWS!
If one was only reading the headlines, one would expect retail vacancy levels to be soaring. But nationally, they are only ticking up slightly and Sacramento shopping center vacancy fell in 2025. Not all the recent headlines have been bleak. Amazon may be shutting down their Go and Fresh stores but is ramping up Whole Foods expansion and will be adding 100 stores “over the next few years.” While Kroger and Albertson’s are trimming underperformers, Aldi
remains in aggressive growth mode (180 stores), as is Grocery Outlet (40+), Sprouts Farmers Market (30+), and Trader Joe’s (25+).
Source:GallelliRealEstate;CostarGroup
Automotive parts chains are a mixed bag; but while Advance Auto Parts is pulling back, both Autozone and O’Reilly want to add 150 stores each. However, automotive service is in growth mode across the board. Valvoline (300 planned), Take 5 Oil Change (150), and NAPA (50+) leading the way, but we are tracking at least 100 regional players planning on adding up to 500 new stores in 2026. That also holds true for car wash concepts across the USA, with Quick Quack, Tommy’s Express Carwash, and Tidal Wave Auto Spas among the most active of the nearly 200 banners we track nationally.
Apparel is another category where mixed trends are playing out. Mostly legacy mall apparel chains (including department stores) and contracting, but we see growth at the luxury end of the scale and continued aggressive expansion from off-price players with TJ Maxx (and all their banners), Ross Dress for Less, Nordstrom Rack and Old Navy all planning double-digit growth. Burlington alone wants to open 100 stores.
Discounters remain active—Ollie’s Bargain Markets is adding 75 stores (all east of the Mississippi), while Costco and BJ’s Wholesale remain in aggressive growth mode, while Sam’s Club is adding their first new store in nearly a decade this year. Meanwhile, dollar stores remain active with Dollar General and Dollar Tree leading the way (both want to add 400-450 stores), while Five Below wants to add 150. All three of these chains will consider former drug store space—as will Tractor Supply (100), Harbor Freight (50).
Other major chains in growth mode include Ace Hardware (100-150), Planet Fitness (150-175), Chase Bank (100), PayMore (95+), JD Sports (50-70), Sky Zone Trampoline Parks (50+), AFC Urgent Care (50+), Boot Barn (50), Barnes & Noble (60), Target (35-43) the chain’s 125,000 SF average), Dollar Tree: 33, and there are thousands of other chains still in growth mode—though most of which are local or regional players posting incremental growth (IE, ten unit chains adding one new store).
Meanwhile, a new batch of QSRs are ramping up growth even as some legacy chains are contracting; Jersey Mike’s is planning at least 350 new locations;
7 Brew Coffee: (300+), Dunkin (225+), Chipotle (200+), Dutch Bros Coffee (150+), Dave’s Hot Chicken (150+), Tropical Smoothie Café (150+), Chick Fil-A (100+), and even Starbucks (after closing more than 400 underperformers in late 2025) wants to open at least 150 new locations before the end of 2026. Scooter’s Coffee, Nothing Bundt Cakes, First Watch, Raising Cane’s, Smoothie King, Wingstop, Firehouse Subs, Jimmy John’s, Qdoba, Whataburger, Crumbl Cookies, Playa Bowls, and dozens of other restaurant concepts are planning store openings in the 75-125 unit range.
Another factor that bodes well for retail entering the year is that, barring a significant downturn in the economy, closures are not likely to reach 2025 levels in 2026. Gallelli Real Estate’s tenant tracking division, The Brown Book, tracks roughly 20,000 retail space using concepts across traditional and nontraditional categories (like MediSpas, Car Washes, Veterinary Clinics or Urgent Care facilities). Our data indicates more cautious growth across the board in 2026 from traditional merchants, but heightened growth from the non-traditional categories. Meanwhile, the currently at risk chains are generally smaller than those we saw filing bankruptcy in 2025. Bankruptcies may come at the same pace we experienced last year, but the amount of space that will come back to market should be less. So, what does all this mean for local Sacramento region shopping center vacancy?
LOOKING AHEAD
As mentioned earlier, Sacramento shopping center vacancy decreased from 7.5% to 7.3% over the course of 2025. This was largely buoyed by the impact of larger grocery deals and mid-size leases for users backfilling drug store space. That said, we continued to see a steady drumbeat of deals from smaller tenants, though the pipeline of active tenant requirements appeared to be slowing heading into the final months of the year.
The coming year will see some larger deals. In Q1 2026, numbers should get a boost from Costco’s January opening of their new 161,000 SF store in West Roseville. Meanwhile, Whole Foods will be adding a store in Elk Grove and H Mart is planning to open in South Sacramento in the first half of the year while Grocery Outlet will be adding a Citrus Heights location as well. But grocery requirements appear to be
slowing, and we may not be far from a competitive tipping point in the market.
The reality is that competition in the already competitive grocery world is heating up with the coming year likely to be one with more winners and losers emerging. In addition to the previously mentioned Amazon Fresh closures, Raley’s is closing a Roseville store in January (the West Sacramento-based chain is also closing a Walnut Creek Nob Hill store this May). Meanwhile, we are starting to see an uptick in closures nationally from some larger national chains. Both Kroger and Albertson’s are closing stores in 2026—though none of these closures are expected to impact the Sacramento region.
Sacramento’s occupancy gains in 2025 were partially driven by larger deals. While Costar says that deals of 5,000 SF or less accounted for 90% of all deal activity nationally last year, we think locally that number was closer to 80% to 85%. We suspect that number will be closer to the national average in 2026.
We expect retail demand to remain positive in the coming year, but the market will struggle to match the levels of growth recorded in 2025. But this is only one half of the equation that drives overall vacancy and, ultimately, rents. In fact, a primary reason that both local and national shopping center vacancy has held its own in the face of heightened closures and bankruptcies is that retail development levels remain at, or near, historic lows.
The post-pandemic inflation spike of 2021/2022 has had a profound impact on commercial real estate development. According to the Federal Reserve’s Producer Price Index, the cost of construction materials spiked 44% between January 2021 and May 2022. Those prices would move backwards slightly over the next few years, but by January 2025, they were still 33.5% above where they had been four years earlier. By comparison, local retail asking rents increased by only 8.9% during that time. This has created a dynamic where it is increasingly difficult to get any new construction projects to pencil at current rents. Unfortunately, we are seeing the price of construction materials inching upward again— primarily due to tariffs.
The US imports 23% of its concrete and clinker (the key ingredient in concrete) from multiple sources, including Canada (the country where the Trump administration has levied the highest tariff rates). Roughly 23% of finished
steel in the US is imported (Canada, Brazil and Mexico being the top supplies). Meanwhile, Canada alone accounts for 20% of the US lumber supply.
The Federal Reserve’s Producer Price Index is released quarterly, and the recent government shutdown of October/November 2025 has delayed the release of new data, but through Q3 2025, construction materials had increased more than the general rate of inflation with pricing up nearly 4% over the first nine months of the year. Anecdotally, we are hearing that price increases have been increasing at a faster clip over the last few months as many tariffs initially announced in April 2025, were not instituted until September 2025. It remains unclear as to how much more prices may increase, but they are likely to go up further before they stabilize. If anything, making new developments pencil in 2026 might become more challenging for all but the most coveted new projects.
At the national level, we think this will mean that new construction levels will remain near historic lows in the near-term. According to the Costar Group, 29.2 million square feet (MSF) of retail space was delivered across the United States in 2025. While this was up from the 26.8 MSF of new construction recorded in 2024, keep in mind that from 2010 through 2019, the market averaged 73.5 MSF of new product annually. They project development levels to fall in 2026, projecting roughly 26.0 MSF of deliveries in the year ahead.
Locally, 242,000 SF of new shopping space came online in 2025. But while new construction is likely to decline nationally in the year ahead, they will increase in the Sacramento market.
There was 213,000 SF of shopping center space under construction as of the start of 2026, but there are a few additional projects that will be moving forward shortly that will boost deliveries in the Sacramento region by the end of the year. The most prominent project is Baseline Marketplace in West Roseville. As mentioned earlier, a 161,000 SF Costco at this site opened in early January 2026 (and will show up in Q1 2026 numbers). By late spring or early summer, this project will begin construction on as much as an additional 583,000 SF of space (including two additional 100,000 SF+ anchors, as well as inline and pad space), though this may be staggered in phases.
Though development levels will tick up in 2026, most of it has leasing commitments in place that will drive positive net absorption. Speculative construction is limited to pad sites and smaller inline buildings, dominated by smaller spaces—typically 2,500 SF or less, which is where we continue to see solid demand. As such, we are not anticipating new projects to not significantly impact vacancy levels.
Despite the elevated store closure and bankruptcy of the last couple of years, the challenge most brokers report to us (whether locally or nationally) is that finding quality product remains a challenge—particularly when it comes to smaller shop space (5,000 SF or less) or junior box space (25,000 to 35,000 SF), particularly for Class A or B+ product. This has helped to drive rental rate growth, even though retailers have had plenty of glum headlines in the last couple of years.
The current average asking rent for shopping center space in the Sacramento region is $2.28 per square foot (PSF) on a monthly triple net basis, up 3.6% from the $2.20 PSF rate recorded one year ago. This benchmark metric conceals wide variations depending upon the size of the space being marketed, as well as the class of the building, but has been consistently growing since 2021.
Initial economic uncertainty regarding tariff impacts appears to be fading, with many companies that had paused moves earlier in the year returning to dealmaking. But despite positive GDP gains in the past year, the US economy could best be described as sluggish in 2025.
it has been slowly ticking upward. Employment growth virtually flatlined over the final half of 2025. While US stock indices are all at or near historic highs, nearly all the gains of 2025 have been driven by more than $1.2 trillion in AI investment over the past year. To put this in perspective, that is roughly the annual GDP of Saudi Arabia. This has sparked growing concerns of a potential AI investment bubble akin to what we saw with internet businesses in the tech wreck of 2000. That said, dot.com stocks at that time were trading more than 50X annual earnings, while AI stocks today are trading at roughly 35X to 40X earnings. Those values are decidedly frothy, but not necessarily in the danger zone now. Lastly, heightened geopolitical tensions and internal political division have emerged at the top of most economist concerns heading into 2026.
The only thing certain with any economic forecast for the year ahead is uncertainty Against this backdrop we anticipate a continued subdued retail environment in 2026.
Retail, like the greater economy, continues to produce a mix of sometimes contradictory indicators. Early results from the 2025 holiday shopping season indicate a solid performance. Though December 2025 retail sales numbers will not be available from the US Census Bureau for another couple of weeks, the National Retail Federation estimated that sales grew by a respectable 4.1% between November 1 and December 31, 2025. This is critical for a fragile retail sector where a weak holiday season could have been an omen. Feared price hikes did not occur, with the Bureau of Labor Statistics reporting that the consumer price index rose 2.7% in December. Likewise, concerns of potential inventory disruptions or shortages never transpired.
Meanwhile, the retail industry awaits the Supreme Court’s ruling on the constitutionality of the administration’s tariff policy. That decision is expected shortly, though it may come with a new set of uncertainties. A ruling in favor of the administration would settle the matter. There is also the possibility that the Court will come back with a more procedural ruling; for example, defining the limits on presidential tariff authority, without invalidating the import taxes. If the tariffs are deemed unconstitutional, billions of dollars in refunds could be due to companies in what could be a major financial boost for retailers. But this assumes the administration wouldn’t just go through Congress to re-enact the tariffs (though those measures would come with limits and Congressional oversight), or that a refund process could be tied up in the courts for month or years. Ultimately, even with a court ruling likely within days of this report, the matter is not likely to be resolved for some time.
Consumer spending has held up the past few months far better than most early economist predictions when the tariffs were announced In April. That said, prices have slowly been rising and may not yet have peaked, given many of the tariffs were not enacted until later in the year. JP Morgan is now predicting inflation to peak in the first half of 2026 and to drop over the final half of the year, though heightened geopolitical tensions could set off another round of trade wars.
The bad news is that there are some worsening consumer metrics that are concerning. According to the Federal judiciary, personal and business bankruptcies were up 10.6% annually through November 2025 (the latest data available) and consumer debt levels exceeded a record $18.5 trillion in Q3 2025 according to the Federal Reserve. The good news is some of this was driven by mortgage originations (i.e. “good debt”) with residential real estate picking up slightly. The bad news is this also reflects an increase in credit card balances (i.e. “bad debt”) of more than $24 billion in Q3 2025 with American consumers now holding a record $1.23 trillion in credit card debt. Worse yet, the average interest rate on that debt is now at 24% (up from 16% four years ago). While the administration has floated the idea of an interest rate cap of 10.0% on credit cards, that idea is already facing resistance from the banking community and would be sure to face major challenges in the courts if implemented. We think the consumer has been in a relatively fragile place the last couple of years since the Biden-era inflation spike. But unless the overall economy takes a serious turn for the worse, 2026 is likely to play out much like 2025 did with retail holding its own despite continued headwinds.
Gallelli Real Estate is a private firm that specializes in commercial real estate services and property management. We believe that as a boutique firm whose understanding of the business runs as deep as our core values, our advantage is large. We take pride in our unique approach to offer more individual solutions that address the ever changing needs of our clients and the industry. After all, our success is measured by the success of our clients and the strength and longevity of our relationships.
