The growth of ecommerce and fast delivery has put pressure on physical storefronts, which were once more oriented towards goods-based businesses. According to real-estate data giant CoStar, in 2025, for the first time on record, retail leasing by services-based tenants (50.4%) edged out goods-based tenants (49.6%) in square footage. This is up from 40% 15 years ago. The rise in service-based tenants is being led by businesses like fitness gyms, spas, salons, and experiential/entertainment retail – not restaurants and other food services, a category which saw its share fall to its lowest level (16.8%) during the postpandemic era.

CoStar notes that some fitness businesses have been particularly effective at taking over and retrofitting 2nd-generation space (previously occupied commercial space), even larger spaces that once held a big-box retailer or junior anchor tenant. Consumer interest in wellness has seen tailwinds from GLP-1 weight-loss medications and imagery-based social media like TikTok and Instagram, propelling businesses like fitness gyms (e.g. Planet Fitness) and yoga studios. In 2025, fitness centers represented 30% of service-based leases – up from 20% 9 years earlier – including both national operators and local concepts.

Experiential and entertainment retail has also seen significant gains, albeit from a small base. This category includes social recreation and immersive experiences, ranging from pickleball courts, golf lounges, and climbing gyms, to virtual-reality experiences and brand concepts like the Netflix Houses, the Meta Lab retail townhouse, and Target SoHo. (Interestingly, Gen Z has been returning to the mall as a social experience, even though they may not always buy something.)

Some smaller-format services businesses have benefited from the same wellness dynamics as fitness centers. These include medspas and skincare clinics providing laser/light treatments, Botox, IV infusions, and cryotherapy; salons providing hair, nail, brow, lash, tanning, and waxing services; and health and mental wellness clinics.

In general, services-oriented businesses tend to occupy smaller footprints than goods-based stores that need to display merchandise and store inventory. This has resulted in new retail leasing skewing smaller than before, with average retail lease size in 2025 falling under 3,500 sq. ft. for the first time, in a broad structural shift.

More landlords are carving up and reconfiguring large big-box locations into smaller, flexible spaces that can accommodate multiple service-based businesses. This strategy can result in up to 20% higher rents as well as greater foot traffic across the storefronts. This has helped US retail vacancy rates stay steady at a relatively low 4.4%, despite the bankruptcies and closures of the past couple years. (More than half of the closures in recent years have been larger locations over 5,000 sq. ft.)

Consumer spending seems to be bifurcating into discount and luxury segments – even while the same high-income consumer might be shopping at both Walmart and Louis Vuitton. Discount retailers are still doing well, in both retail leasing and the stock market. Chains like Ross Stores (up 68%) and Dollar Tree (up 63%) have seen big run-ups over the past year. On the other end, spending among affluent consumers and in luxury markets has generally held up, despite reported belt-tightening. This has motivated chains like Macy’s and Saks Fifth Avenue to close stores in order to focus on luxury shoppers, and caused fashion brands of all stripes to seek to go upmarket.

This is all happening at a time when the labor market is facing an AI-driven restructuring. AI, to date, has been a driver for “hiring hesitancy” and “expansion without job creation” and perhaps layoffs motivated by the desire to cut costs and invest in AI – but not a broad-sweeping direct substitution of AI for labor. Nevertheless, AI is clearly changing how work gets done. (It also may be one of the factors putting pressure on compensation.) People are seeing the writing on the wall and gravitating towards new careers, such as healthcare (which remains robust), the trades (e.g. HVAC specialists, electricians, plumbers), and entrepreneurship (AI-assisted and otherwise). Service-oriented retail businesses are likely to be among those that will still need human workers with human capacities after this shift shakes out.

Whether these services businesses will do well is a different question. As CoStar puts it, “performance will depend more heavily on concept quality, cost discipline and the consumer’s ability to sustain discretionary spending levels.”

Aug 29 2025 (3 Shifts): The bifurcation of entry-level jobs

May 16 2025 (3 Shifts): The Airbnb of services