Why today’s retail leasing market favors efficiency over square footage
Source: CoStar Analytics, by Brandon Svec, December 3, 2025
Images: CoStar
The retail leasing market is quietly—but decisively—reshaping itself. While headlines often focus on store closures and e-commerce, the reality on the ground is more nuanced: retailers are still leasing aggressively, but they’re doing it in smaller, leaner, and more efficient spaces.
Smaller Boxes Are Now the Standard
Over the last four quarters through Q3 2025, nearly 53,000 retail leases were signed nationwide, totaling more than 206 million square feet. But here’s the headline that matters to landlords and investors:
The average retail lease size has officially dropped below 3,500 square feet for the first time on record.
Retail leasing has always skewed small—but that trend has now accelerated. Large-format space is losing favor as retailers rethink overhead, staffing, and how consumers actually shop.
Here’s how the leasing activity breaks down:
- Under 5,000 SF: ~80% of all retail lease transactions
- Under 2,500 SF: 44% of deals, 29% of total square footage
- 2,500–5,000 SF: 36% of deals, 22% of total square footage
- Over 20,000 SF: Less than 5% of all leases and only 11% of total square footage
Translation: the era of the department store–driven “big box” is still unwinding, and flexible small-format retail is winning.
Food & Beverage Is Leading the Charge
The strongest demand in small retail continues to come from quick-service and fast-casual dining brands. Companies like:
- Starbucks
- Chipotle
- Chick-fil-A
- Jersey Mike’s
- Dunkin’
- McDonald’s
are aggressively expanding in sub-5,000 SF formats, often with drive-thru, pickup, and digital-order-forward layouts. These brands are optimizing for speed, convenience, and high sales per square foot—not oversized dining rooms.
This is why single-tenant drive-thru sites remain some of the most sought-after assets in the retail investment market today.
Service Tenants Are Filling the Gaps
It’s not just food driving the small-space trend. Service-based retail continues to be a major demand driver:
- H&R Block
- Chase
- Verizon
These tenants thrive in high-visibility, easily accessible locations, serving everyday consumer needs that can’t be handled online. Since COVID, consumers have shown a clear preference for proximity, speed, and necessity-based services—and retailers are following that behavior.
What This Means for Investors & Developers
Even with strong consumer spending coming out of the pandemic, the recovery has been uneven across box sizes. Smaller formats are seeing sustained demand, while large boxes are facing:
- Longer downtime
- Higher re-tenanting costs
- Limited replacement tenant pools
The takeaway is simple:
Agility now beats sheer size in retail real estate. Today’s most resilient retail properties are:
- Modular
- Drive-thru capable
- Highly visible
- Easy in / easy out
- Built for service and food users
Bigger is rarely better anymore.
Bottom Line
Retail isn’t going away—it’s just getting smarter, smaller, and more efficient. For landlords, developers, and investors, success in today’s market depends on designing and acquiring properties that align with how people actually shop, eat, and live in 2025.
