Retailers have leaned on the resilience of the American consumer to carry 2025’s recovery. But cracks are beginning to form. Slower spending, cautious earnings calls, and rising debt burdens are sounding alarms—and commercial real estate stakeholders should be listening closely.
Despite just a 0.2% rise in personal spending last month, the U.S. savings rate surged to 4.9% in March—the highest in nearly a year, according to the U.S. Commerce Department. On the surface, that suggests discipline. But underneath, it’s more complicated: with pandemic-era excess savings largely exhausted by end of last year, many households may be saving more now because they have no cushion left.
Additionally, Americans had increasingly tapped 401(k)s throughout 2024 for hardship withdrawals at the highest rate on record, according to Vanguard data. Roughly one in three hardship withdrawals were for less than $1,000, highlighting the difficulty many households face covering basic costs. Sentiment data adds another layer of nuance.
The University of Michigan’s Consumer Sentiment Index ticked up slightly to 52.2 in late May—but that’s still more than 20 points below where it stood a year ago, and among the lowest readings since the pandemic. The May reading essentially held flat from April’s notable decline from 57, when inflation concerns and economic uncertainty took center stage. While the Conference Board’s Confidence Index climbed to 98, year-over-year comparisons show significant drops across every income bracket. Consumers aren’t growing more optimistic—they’re still operating in the same cloud of caution that emerged last month.
The message is clear: Consumers have changed their spending habits by saving more and being more discerning about what they’re buying. While retail CRE has demonstrated resilience in the face of shifting consumer preferences and economic headwinds, a downturn in consumer health could ripple into leasing decisions, tenant performance, and transaction momentum.
1. Buy Now, Pay Later—And Maybe Never
One of the most telling shifts in consumer behavior is how debt is being used to manage everyday expenses. “Buy now, pay later” (BNPL) loans—once limited to e-commerce and discretionary purchases—are now covering groceries, utilities, and streaming services. But as BNPL creeps into small-ticket and essential categories, repayment risk grows increasingly difficult to ignore.
Nearly a quarter of BNPL users now use the financing for groceries, up from 14% a year ago, according to a CNN report. Klarna recently replaced Affirm as Walmart’s exclusive BNPL partner and signed a deal with DoorDash, embedding installment payments deeper into everyday spending. It also reported a 17% year-over-year rise in credit losses—though it downplayed the severity. Affirm, meanwhile, told investors it sees no borrower stress, despite external surveys suggesting otherwise.
A LendingTree survey found that 41% of BNPL users made at least one late payment in the past year, up from 34% previously. Roughly 25% said they used the loans to pay for groceries—nearly double the rate from the year before.
The rapid expansion of short-term installment debt—outside traditional credit checks and without consistent regulatory oversight—introduces new risks for both consumers and the retailers that depend on them.
“This kind of debt rarely shows up in traditional credit metrics—especially from providers that don’t report to credit bureaus, like Klarna—which means lenders and landlords may be underestimating risk exposure,” said Manus Clancy, head of Data Strategy at LightBox. “When repayment starts slipping, it won’t just be a consumer finance story—it’ll ripple into leasing, valuations, and deal flow.”
2. Preparing for a Rainy Day, Shopping for Essentials
Consumer spending hasn’t collapsed—but it has fractured. The divide between essential and discretionary spending is growing, and that reallocation is reshaping retail performance in ways that CRE stakeholders can’t afford to overlook.
Retail sales trends show that value-focused and essentials-based retailers are gaining share, while discretionary categories are under pressure. Costco’s U.S. same-store sales rose 8% in its fiscal third quarter, driven by demand for staples like eggs, butter, and olive oil. In contrast, Target reported flat year-over-year sales in Q1 and flagged continued weakness in discretionary categories like apparel, home goods, and electronics—segments that often drive inline tenants in lifestyle centers and suburban strip malls.
This shift in behavior cuts across income levels. According to a McKinsey & Co. survey, 60% of consumers said they’ve already changed or expect to change their purchasing behavior in response to tariffs. Low-income households were most likely to switch to cheaper brands, but higher earners are showing increased price sensitivity too—migrating from premium to private-label goods. Dollar Tree has seen a measurable influx of shoppers earning more than $125,000, as inflation and tariff headlines drive even wealthier consumers toward discount channels.
And some of today’s stronger consumer spending data may be deceptively elevated. In categories like autos and durable goods, volume may be inflated by consumers racing to beat tariff-related price increases. That kind of pull-forward behavior can skew topline figures and obscure weakness beneath the surface.
“We’re seeing elevated activity in some categories that’s likely front-loaded,” noted Clancy. “When consumers rush to beat price hikes, it can mask underlying weakness—and CRE operators need to be careful not to mistake temporary lift for lasting demand.”
3. Retail Outlooks Depend on a Stable Consumer—and That May Be a Risky Bet
One of the more overlooked risks in today’s retail outlook lies in a pair of assumptions driving some corporate guidance: that consumer strength will hold, and that tariffs will remain at current levels through the end of the year.
Best Buy noted in their earnings call in May that its full-year guidance assumes “no material change in consumer behavior from the trends we have seen in recent quarters.” The company also noted that their guidance assumes that tariffs are expected to “stay at the current levels for the rest of the year.”
But mounting evidence suggests those assumptions may not hold. The very consumer behavior retailers hope will stay stable—spending habits, brand loyalty, willingness to absorb price hikes—is already showing signs of strain. Discretionary sales remain soft, households are shifting to essentials, and there’s growing anecdotal and earnings-season evidence of stockpiling ahead of expected tariff increases.
“If both assumptions break at once—if the consumer weakens and tariffs bite harder than expected—retail CRE could face a sharper repricing than many are prepared for,” said Clancy. “There’s real danger in treating today’s numbers as predictive without stress testing what happens when conditions change quickly.”
While U.S. consumer debt hit a record $18.2 trillion in Q1 2025, credit card balances actually declined by $14 billion—perhaps reflecting seasonal deleveraging, tighter lending, or a shift toward short-term installment tools like buy now, pay later (covered earlier). Beneath that surface, delinquencies are rising: Student loan delinquencies spiked from 0.8% to 8% following the end of the pandemic-era pause, and auto loan delinquencies continued their upward climb.
If retailers are misjudging the resilience of their customer base, the consequences will extend well beyond earnings misses. Lease renewals, expansion plans, and store openings—all key inputs to CRE portfolio performance—could slow or reverse course quickly.
Watch the Signals Beneath the Surface
The consumer is still spending—but the risk signals are moving elsewhere. Debt is getting heavier. Price sensitivity is growing. And behind the register, capital is adjusting in real time.
Lending trends already hint at a more cautious environment. The LightBox CRE Activity Index showed a 19% drop in lender-driven appraisal volume in May—the first monthly decline since December 2024.
“Appraisal volume is one of the earliest signals we get from the capital markets,” said Dianne Crocker, research director at LightBox. “When it drops as sharply as it did in May, it’s a clear sign from the trenches that commercial real estate lenders are pulling back, tightening underwriting, and being more cautious in extending debt capital.”
Retail portfolios, particularly those exposed to discretionary tenants or expansion-stage leases, may face renewed scrutiny—not just from investors, but from lenders recalibrating to a more fragile and uncertain operating environment.
“If assumptions about the health of consumer spending prove to be overstated, this won’t just hit earnings. It’ll trigger a reassessment of asset risk in the retail sector,” Crocker warned. “And right now, capital is already shifting into defensive mode.”
In a market driven by confidence, the first crack usually isn’t a collapse—it’s a misread. CRE decision-makers would do well to question the assumptions and track the shifts in data.
