Research predicts a positive year ahead
For years, the prevailing opinion among retail property experts was that the UK simply had too much stock. In an era when consumers increasingly buy online, thereby bypassing the high street or shopping centres entirely, there was simply no need for so many shops.
32% increase in investment demand
Now, however, a new consensus appears to have emerged, with research from multiple companies predicting a positive year ahead. Rightmove is no exception. The latest iteration of its Commercial Insights Tracker, covering the year to the end of Q4 2024, recorded an increase in demand in the leasing market of 6%. At the same time, supply fell by 5%. The figures in the investment market are dramatic, with an increase in demand of 32% and a decrease in supply of 12%.
Right-sizing to meet new demand
Forecasts for the year ahead from some of the world’s biggest advisory firms concur that the outlook for the year is positive for retail. “Constrained supply over recent years means that retail is ‘right-sizing’ to meet a new demand reality, and opportunities are emerging as improving vacancy rates combine with positive economic trends,” JLL wrote in a research paper published towards the end of last year.
“The investment market should also benefit from gradually increasing activity, as more investors seek to take advantage of the rebasing of real estate prices, and greater levels of stock on the market. Retail fundamentals appear strong in many markets, creating a powerful case for real estate investors to target the sector. The tide has finally turned, and a new era for the right type of retail has arrived.”
8.9% returns predicted in 2025
Knight Frank comes to similar conclusions. It forecasts that taken as a whole, retail will achieve returns of 8.9% in 2025, compared to 5.1% for the wider commercial property market. Retail warehousing will provide particularly impressive returns, at 11.4%, while shopping centres will see returns of 8.6% and high street stores 7.6%.
“Tellingly, this improvement in total returns will be driven not just by high income return (+5.8%) as was the case in the past, but also by positive capital growth (+2.9%),” Knight Frank says. “Capital value growth will be strongest in retail warehouses (+4.5%) but will not be insignificant in either shopping centres (+1.7%) or high street shops (+2.9%).”
It adds: “Retail’s annual average total returns between 2024 and 2028 are forecast to be 8.1%, with 5 year annual average capital increases of +2.2%. Retail’s annual total returns over this five-year period will be higher than Offices (6.0%) and only marginally lower than Industrial (8.2%).”
Rentals also on an upward trajectory
Rents are also on the up. According to Knight Frank, overall retail will see rental growth of 1.2%, which the company admits doesn’t sound all that impressive but points out that the headline figure disguises a far more positive story. “Although still fairly modest, this is significant in that all retail sub-sectors are forecast to achieve positive rental growth to some degree, a feat achieved only once since 2007, in 2014,” it says.
Positive predictions despite some challenges
These positive predictions are made despite some unhelpful headwinds. Most prominently, the Autumn Budget included what Knight Frank describes as a “triple whammy” of measures that will impact retailers particularly hard: increase to employer national insurance contributions; increases to the minimum wage; and changes to how business rates apply to retail.
The researchers state that these pressures on retailers will have a knock on effect on retail property, but maintain that the sector ultimately remains on an upwards trajectory. “[The measures in the Budget have] added considerable cost pressures to retail occupiers, which are likely to moderate demand and rental growth in the short term. Once understood and absorbed appropriately, the sustained retail recovery will continue longer term.”
Colliers agrees with the likes of JLL and Knight Frank that the sector has turned a corner and that 2025 will be a positive year for retail in the right location.
“There is increasing competition for prime space in the retail sector in shopping centres, high streets and out-of-town locations with particular expansion in the realm of supermarkets,” the company’s researchers wrote in a recent forecast.
“Despite challenges around rising costs, the limited availability of retail stock continues to push up prime rents, with the ongoing importance of physical retail shopping as a leisure experience reflected in footfall numbers.”
Or, as David Fox, head of retail at Colliers, puts it: “Retailers are competing for limited space, which is driving rental growth and underlining the continued value of bricks-and-mortar retail.”
Sources:
Rightmove Commercial – Q4 2024 Insights Tracker
Knight Frank – Retail Investment Update & 2025 Outlook
JLL – Retail poised to rise the wave after tide turns
Colliers – 2025 commercial property predictions