By Kate King

Shopping-center owner Sandy Sigal groaned when he found out that the bankrupt home-goods retailer Big Lots was closing its location at his Whittier, Calif., strip center.

He knew it wouldn't be easy to replace Big Lots, which had attracted shoppers from the surrounding neighborhoods to the property.

"In today's slowdown, as good of a location as this is, it's taking longer," said Sigal, who is chief executive of shopping-center owner and developer NewMark Merrill Companies. "People are saying, 'I'm on pause.'"

The retail property market's multiyear rebound is fizzling, buffeted by large retailer bankruptcies, shoppers pulling back and tariff turmoil that is slowing demand for store space.

Retailers vacated nearly 6 million more square feet than they occupied during the first three months of the year, according to real-estate firm Cushman & Wakefield. That marked the weakest quarter for shopping-center leasing since the onset of the pandemic in 2020.

The slowdown follows a rise in store closures that began in the second half of last year as struggling pharmacy chains such as CVS Health and Walgreens downsized their fleets. Bankrupt big-box retailers such as Party City, Big Lots and craft-supply company Joann are also closing hundreds of locations.

In 2024, retailers across the U.S. closed about 1,300 more stores than they opened, according to Coresight Research. That ended a two-year streak of net expansion.

The rest of this year looks challenged, said James Bohnaker, senior economist at Cushman & Wakefield, who pointed to inflation fatigue among shoppers and uncertainty hovering over the economy and stock market.

"People are spending less," Sigal said. Sales have flattened at his shopping centers, particularly at sit-down restaurants, even though foot traffic remains robust.

Concern over tariffs' impact has some retailers who were looking to sign new leases hitting the pause button.

"We have had people say, 'OK, we've got to wait and see what's going to happen before I commit,'" said Brandon L. Singer, chief executive of retail leasing and advisory firm MONA Retail Holdings.

The overall retail sector is still on solid footing, with vacancy near historic low levels and few developers building new shopping centers to compete with existing real estate.

And many national retailers continue to open new stores. Off-price retailer Burlington, which has revamped its fleet and expanded aggressively in recent years, bought 45 of Joann's leases in bankruptcy court last month.

Discount retailer Five Below, which opened a record 228 new stores last year, plans to add another 150 in 2025 even as it considers price increases and other measures to mitigate tariff impacts. About 60% of the company's inventory, which includes candy and trinkets, was imported from China last fiscal year, Chief Financial Officer Kristy Chipman told investors in March.

Even enclosed malls, the slowest retail sector to recover from the pandemic, are better positioned than they were five years ago.

"When Covid hit, we didn't have the margin of error to operate with, and that pushed us into filing for bankruptcy," said Stephen Lebovitz, CEO of mall owner CBL Properties, which emerged in 2021 from 12 months in bankruptcy protection. Last year, the company reported record-high leasing. "Today, we have that cushion to absorb whatever the economy throws at us."

Still, the slowing pace of lease signings signals that retail's supercharged recovery from the pandemic is running out of steam.

Two years ago, when demand for shopping-center space was at its peak, landlords were eager to regain control of stores vacated by Bed Bath & Beyond. Many replaced the bankrupt home-goods chain with better-performing tenants at significantly higher rents.

Now, landlords are less enthusiastic when big-box tenants exit from their properties. Sigal said the cost to reconfigure space for a replacement tenant, particularly in states with high labor costs such as California, is outpacing the potential rent-hike gains.

Some retailers are using the uncertain climate to ask for concessions, indicating that tenants are regaining leverage in lease negotiations after years of landlords having the upper hand. And a protracted trade war, if it occurs, would likely lead to widespread price increases, straining both retailers and their customers.

Write to Kate King at kate.king@wsj.com

(END) Dow Jones Newswires

May 12, 2025 05:30 ET (09:30 GMT)

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