Cold, inclement weather this past Winter, followed by war in Iran, put a damper on shopping center net absorption during Q1 2026 and consumer sentiment continued to track lower. Meanwhile, investment offerings continued to rise as private and institutional investors increasingly focused on grocery-anchored necessity-based retail opportunities, driving pricing higher.

Consumer Confidence Wanes in Face of Higher Inflation

U.S. consumer confidence ended the First Quarter at the lowest reading in the University of Michigan Consumer Sentiment Index’s 70-year history. Households remain highly cautious around discretionary spending, large purchases and financial commitments. Current conditions dropped to 50.1 in March from 55.8 in February and expectations fell to 46.1 from 51.7 over the same time period, driven mostly by the spike in inflation expectations based upon rising energy prices. The U.S. Bureau of Labor Statistics’ March 2026 headline CPI rose 3.3% year-over-year, the highest annual rate since April 2024, driven almost entirely by a 10.9% surge in energy costs. Per Ben Emons, founder of FedWatch Advisors, “The disruption of the strait is a multi-commodity supply chain shock….Combined, these commodities account for zero percent of the CPI’s direct weight, but their effective weight, which reflects their indirect impact on food, housing, medical care and goods, is more than 20%. This is where the affordability crash hits home especially hard because food, housing and medical care account for more than 75% (!) of household budgets.” Navy Federal Credit Union Senior Economist Heather Long adds, “Americans are upset about the war in Iran and they are showing it. [Consumers] have been clear that their top concern is affordability.”

Job growth was uneven during the First Quarter 2026, with a 160,000 gain in January, a 133,000 loss in February and a 178,000 gain in March, resulting in an unemployment rate of 4.3% at quarter end and wage growth at 3.5% year-over-year. Hiring remains concentrated in a handful of sectors, including health care, construction, transportation and warehousing. Job weakness was most pronounced in accommodation and food services. Professional and business services, information, retail and leisure and hospitality all were flat.

The U.S. Census Bureau released its advance estimate of retail and food services sales for February 2026 on April 1, showing total spending up 3.7% from a year earlier and 3.1% year-over-year for December – February. Online retailers posted a 7.5% annual sales gain and food services and drinking places were up 5.2% from February 2025 – a positive sign for restaurant and experiential retail operators.

Given this data and the continuing federal government job losses in Washington, D.C., it is somewhat surprising that the regional economy seems to be experiencing a rebound. According to Ian Anderson, CBRE’s senior director of research and analysis, the regional commercial real estate industry is improving. Per CBRE’s REVIVE Regional Vibrancy Index, which improved 68.7 points in February (the third consecutive monthly increase), “The data is pretty good. For a market like Washington, with so many of its challenges, I’m a little bit surprised on how well the data is showing itself.” Much of the monthly increase in the index was due to improvement in the mobility and visitation sub-composite, which surged 13.7% from the previous month, the largest February increase since 2022. This is likely due to more mild temperatures following the harsh stretch of weather impacting the region over the Winter.

Despite this positive news, a different survey implies that D.C.-area businesses and consumers are less confident than they were a few months ago, as the war in Iran and fears around artificial intelligence have added to consumers’ worries.  According to American City Business Journal’s Metropolitan Consumer Sentiment Index, the metropolitan area’s consumer sentiment score for Q1 2026 fell to 92.4, down from a score of 98 at the end of Q4 2025 and a score of 106.1 at the end of Q1 2025. This marked the fourth consecutive quarter that the score declined and the third consecutive quarter that the score was below 100, the dividing line between positive and negative sentiments.  According to the U.S. Bureau of Labor Statistics, the Washington, D.C. metropolitan area’s unemployment rate is the highest in the country, at 6.7%.

Given the economic uncertainty, off-price retailers and thrift stores continued to experience increased traffic, as consumers sought value and treasure-hunt experiences. The K-shaped economy that supported retail sales through much of 2025 continues but shows greater weakness. Luxury goods retailers continue to struggle amid increasingly constrained discretionary spending and try to regain their aspirational shopper customer base amid slower traffic and sales in mon0-brand boutiques due to rising prices. Meanwhile, traditional apparel and mid-tier department stores saw visit declines, signaling further pressure on middle-class households.