As mall vacancies rise, small businesses move into prime real estate

Kimberly Blair, a San Diego-based wellness practitioner who specializes in grief counseling, noticed an uptick in “screen fatigue” among her clients, whom she had been counseling largely virtually.  So, she decided to open a storefront location and offer more in-person sessions. When she began casting about for locations, she found that there were many prime options because shopping center space was plentiful.

“I was able to negotiate a fantastic monthly rent, but also a flexible lease term. Which in turn secures better outcomes for my clients who need in-person support, and also for my business as a competitive advantage,” Blair said.

Across the country, small businesses, including health practitioners, yoga instructors, and artists, are finding it easier to secure prime commercial space that was once out of their reach. However, experts caution that the opportunities for small businesses vary largely by geography.

According to a recent report from commercial real estate firm Cushman & Wakefield, the national vacancy rate in shopping centers rose to 5.8% in the second quarter of 2025, a 20 basis point increase from Q1 and a 50 basis point increase from a year ago. The report indicates an overall softening of demand, which is leading to easing pressure on asking rents, including for shopping center space specifically. While the data during the peak of the Covid closures was even weaker, the increasing number of store closures and mounting cost pressures on tenants are likely to further dampen rent growth in the next several quarters, the report concluded. 

“Main Street opportunities are definitely on the rise for tenants beyond the traditional retail model,” said Elizabeth Lafontaine, director of research at Placer.ai, which monitors business foot traffic. Opening up retail real estate, especially in booming markets with high consumer migration, presents opportunities for independent retailers and boutiques, Lafontaine said, and she added that malls are also now more open to local businesses, especially if they are ones locally recognizable.

Blair’s experience is not uncommon, according to Teresha Aird, co-founder and chief marketing officer of real estate brokerage Offices.net. “We’ve seen a noticeable uptick in small businesses taking advantage of vacancies in areas that used to be off-limits due to pricing,” Aird said, adding that some of the hardest-hit retail corridors, like inner-ring suburbs and mid-sized city centers, are seeing a reset.

“That’s opened the door for independent retailers, fitness operators, and – in particular – service-based businesses, who were previously priced out,” Aird said. 

To be clear, while vacancies are growing in strip malls, the rents are still rising. “Typically, rental rates don’t go down,” said James Bohnaker, senior economist and Cushman & Wakefield. “The rental rates are going up, but not at the same rate of increase,” he said, adding that post Covid, rental rates were going up 4%, but now they are closer to 2%.

It’s this flattening of the rental rate rise along with increased vacancies that is creating an opening for small businesses wanting to expand into once priced-out commercial property. “We are seeing a rise in medical offices and spas and other uses you wouldn’t have typically seen,” Bohnaker said.

Cushman & Wakefield expects this trend to continue in the near term. “The market has recalibrated a bit. So far this year we are seeing more store closures,” Bohnaker said.

And that will continue to open up opportunities for smaller businesses wanting to move in.

Andy LaPointe, owner of local gourmet food business, Traverse Bay Farms, has two retail outlets in two northern Michigan strip malls.

“What we’ve found is when national brands pull out of prime spots, it’s less about simply filling those spaces, it is about reimagining it as an experience and destination that reflects the local community,”  LaPointe said, noting that for a small business like his, a lot of the spadework has been done when they move in.

“These spaces already had a site selection review, foot traffic, and locals are used to seeing activity in the space. But the magic happens when a small business brings, not a cookie-cutter replacement, but something unique, a place to linger and a sense of belonging,” LaPoint said. “So when a national chain leaves a space, it isn’t just a gap, it’s a canvas for a small, local business to create something lasting.”

Similar to Blair’s leasing experience, many small business owners are scoring more favorable terms, including flexible lease lengths, partial fit-outs, and even rent-free periods in some cases, according to Aird. Some small business owners settling into prime new digs are skipping traditional long-term leases altogether and opting for shorter, serviced or managed office setups that allow them to test a location before fully committing, striking a new balance between visibility and affordability that also supports local regeneration.

“That kind of access wasn’t on the table for startups and small businesses three years ago in most metro areas. Now it is, and they’re making the most of it to test physical presence without overextending capital,” she said.  She also notes that in some formerly bustling commercial centers, landlords and local councils are collaborating to offer short-term leases, pop-up programs, or revenue-sharing arrangements to keep units occupied and reduce vacancies.

“The result is a more flexible, opportunity-rich environment that can be a lifeline for entrepreneurs navigating tight margins and competitive markets,” Aird said.

Marc Norman, associate dean at New York University’s SPS Schack Institute of Real Estate, points to several variables that determine whether a non-traditional business can secure a spot once occupied by a pricey chain.

“Empty space sends a message that a place is struggling,” Norman said. This leads some landlords to cut the prices and open the doors to independent and local type businesses just to keep a plaza active and bustling. “Consumers visiting these places want to see occupied spaces. We don’t want to walk by 15 empty spaces and see one or two occupied spaces,” Norman said. But landlord strategic decision-making varies, he added. If the long-term goal of the shopping center owner is to let the leases expire and eventually offload the property, they may be content with allowing vacancies to accumulate. “The decision might be that you want to empty the retail space to sell,” Norman said.

Norman says many shopping centers are looking for coveted “credit tenants,” which are generally chains that can pay six months’ rent up front on a 5-year to 7-year lease.  However, these are increasingly rare, and if no credit tenants can be scored, smaller businesses have a chance to move in with more favorable terms. 

There are numerous questions, calculations, and risks for a landlord when considering a smaller tenant.

“Is the Mom and Pop going to sign a long lease?” Norman said.

Andrew Spatz, a partner at the New York City law firm of Dorf Nelson & Zauderer who specializes in commercial real estate & land use development, says that the small business opportunity is determined by geography. The marketplace in and about New York City, for example, is “absolutely counter” to the idea that smaller businesses can gain better deals. Demand for warehousing, industrial, and micro distribution has increased the value of vacant spaces.

Still, in other communities where big-box stores have failed and data centers aren’t hogging up demand, there are opportunities. “That absolutely yields the opportunity for small businesses to flourish, but only if the landlords provide leases that are manageable and not ‘triple net’ in nature,” Spatz said, referring to a lease type which also requires a tenant to pay property taxes, property insurance, and maintenance.)

Jacob Naig, a real estate broker and property rehabber in Des Moines, Iowa, said that landlords in his area generally don’t want space to sit empty, which opens up opportunities for smaller businesses.

“In West Des Moines, a family-owned restaurant recently assumed an old chain pizzeria location at a rent of almost 30% below the original asking rent,” Naig said, adding that the landlord even made tenant improvement allowances available to help redesign the kitchen. “Such a deal wouldn’t have been possible just five years ago,” Naig said.

Nevertheless, the high failure rate among small businesses will always be an issue for landlords, according to Glenn Brill, a managing director in the real estate solutions practice at FTI Consulting, noting that the lifespan of more than 50% of small businesses is less than six years.

“Given the risk of small business failure, many landlords are likely willing to wait for the right tenant to pay up at full market rates or more, rather than give the space away at the first chance,” Brill said, adding that for most small businesses, the best opportunities aren’t in empty big boxes, but in smaller strip centers. 

Even then, the conditions must be just right.

“Strip malls with smaller stores offer more opportunities for small businesses, but if local economic conditions are ailing as vacancy grows, an offer of reduced rental rates may not be incentive enough to open a small retail business,” Brill said.