Retail Bankruptcies Fell by Two-Thirds. Restaurants Are the Exception.

The split

Retail bankruptcies through June totaled 10, down from 32 in the first half of 2025. The average closed store is 10,654 square feet, which means the closures are small-format and in-line rather than anchors. Industrial vacancy is 9.3% nationally and lower in Nashville, Houston and Atlanta. Lenders modified $2.36 billion of loans in three months, most of it multifamily.

Restaurants are the outlier. Starbucks, Pizza Hut, Papa John's and Wendy's all have announced closure programs this year. Store Closure Watch logged 417 closure and distress events in the single week of August 8 through 14, including 325 closures and 54 bankruptcies, with food service the largest category. Labor costs, energy costs and a consumer who has cut back on lunch have hit quick-service margins harder than any other retail category.

What that does to a shopping center

A typical neighborhood center leased in the last five years has 25% to 40% of its in-line space in food and beverage, because restaurants were the tenants willing to pay for end caps and drive-throughs. Those spaces are the most expensive to re-tenant. A second-generation restaurant space with a hood, grease trap and drive-through is worth a premium to the next operator, but only if there is a next operator, and the pool of operators expanding in 2026 is thin.

Five things to do this quarter

Read the sales reports. Percentage rent clauses give landlords the right to see sales. Use it. An operator within 10% of its breakpoint is an operator within a bad quarter of closing.

Check the guaranties. Franchisee leases are often guaranteed by an individual or a single-purpose entity, not the brand. Know what the guaranty is actually worth before you assume the Wendy's sign means Wendy's is on the hook.

Verify the insurance. A restaurant that is cutting costs lets its liability coverage lapse first. Pull every food tenant's certificate and check the dates, because a grease fire in an uninsured space becomes the landlord's problem.

Model the go-dark. For every restaurant over 3,000 square feet, calculate the cost of 12 months of vacancy, a $75 per square foot improvement allowance, and a 6% commission. That is the reserve you should be carrying against that tenant, and it is usually larger than the security deposit.

Talk to the operators who are expanding. Regional chains with 20 to 50 units are taking the space the national brands are giving up, and they are signing at rents 10% to 15% below the last deal. A landlord who has those relationships before the closure notice arrives re-tenants in four months instead of fourteen.

The larger point

Retail as a category is in the best shape it has been in since before 2008. That is exactly when concentrated exposure in the one weak sub-sector hurts most, because nobody is looking for it. A center that is 95% leased with a third of the rent from restaurants has a different risk profile than its occupancy suggests. Price it that way, whether you are buying, lending or managing it.

Three of the five items above can run automatically

Reading sales reports, checking guaranties and verifying insurance are document tasks. A property manager with 30 food tenants does them once, in a burst, when a closure scares the owner, and then not again until the next scare. Software does them every month.

Sales reports get read on arrival and compared to breakpoints and trends, so the operator sliding toward closure is flagged a quarter early. Certificates of insurance get checked field by field against the lease on upload, so the lapsed liquor liability policy is caught the week it lapses rather than after the incident. Guaranty terms get pulled from the leases into a table, so the owner knows which restaurant is backed by a national brand and which by a single-purpose entity with $10,000 in it. None of that is new work. It is the work that never got done because it took a person 20 minutes per tenant per month, which for 30 tenants is a week and a half nobody had.