What to expect in retail real estate next year

After a period of positive momentum and a flurry of leasing and investment activity, industry experts predict strategic shifts, innovative concepts and evolving consumer demands to continue reshaping retail in the year ahead. Matthew Reed, head of asset management at British Land, highlights the strong performance of retail parks, a sub-sector that saw continued growth throughout 2024. “Following another strong year for the sub-sector, with our own portfolio 99% let, we expect to see retail parks continue to go from strength to strength in 2025,” says Reed. “Right now, we are seeing the best occupational markets in over a decade, with an increasingly diverse range of retailers actively competing for space as they look to expand out-of-town. The incoming increase in costs to be borne by retailers on account of the recent Budget will inevitably see this trend intensify in 2025, with the retail park format standing out as attractive on relative affordability grounds, but also due to their accessibility and adaptability. “These strong occupational fundamentals, combined with attractive yields, limited capital expenditure requirements and liquid lot sizes, mean that retail parks will remain a conviction sector for British Land looking forward.” Optimism for investment Mark Smith, head of regeneration at Praxis, notes that retail investments are now well positioned for recovery. “Cash generation through increasing rents and occupancy, combined with capital growth through a surge in investor interest in the sector and falling interest rate expectations, means that retail is likely to present some of the most attractive UK real estate investment opportunities in 2025,” he says. With footfall growth in city centres and leasing volumes up 30%, there is growing income across the sector. “We believe that consistently improving operational performance alongside historically high entry yields make the retail sector one of the most compelling investment opportunities,” Smith adds. Not all retail sectors are free of challenges, however. Neil Hockin, head of leasing at Lunson Mitchenall, points out that some retailers are scaling back their expansion plans and focusing more on the social and community impact of their locations. “Success in 2025 will therefore be dependent on a more community-focused approach to delivery,” he sys. “Retail is more than shopping – it fosters local identity, civic pride and community ties. For the sector to thrive over the next 12 months, we need a bold and deliverable vision from a government that values its social and economic impact. “Government support is crucial to making this vision a reality, and we need policies to help address regional disparities, support high-street entrepreneurs and ease rising business costs. Without intervention, many towns risk falling further behind. Still, I’m optimistic. With the right investment and focus on retail’s role in communities, we can transform town centres into vibrant, resilient spaces.” From clicks to bricks Traditionally online-only retailers are expanding into physical stores. Scott Linard, portfolio director at M&G Real Estate, notes that several online brands are now opening physical stores in major UK shopping centres. “Alongside continued investment from established brands, we are starting to see more and more traditionally online retailers look for physical space across leading UK shopping centres,” he says. “The ability for retail destinations to attract exciting brands with large online followings into physical spaces helps to bring in visitors from far and wide. We expect this trend to continue over the next decade thanks to shopping centres’ wide catchment of visitors allowing online brands to have access to a diverse mix of shoppers who are always keen to try out something new and exciting while offering a different type of shopping experience.” Looking ahead, experiential shopping will continue to drive consumer engagement, with brands investing in immersive, interactive in-store experiences. Michael Boundy, director of asset management at the Derbion shopping centre in Derby, observes a notable resurgence in “destination spenders”, particularly in retail spaces that emphasise leisure activity. “Since 2021, we have seen £35.6m invested by retailers in refits and upsizes, and the latest £5.2m of investment will bring more interactive store layouts, enhanced shopping environments and expanded product ranges as we move into the new year,” he says. “Beyond retail, leisure and F&B will continue to be key to ensuring that shopping centres remain full-day destinations, appeal to different demographics and create a broader regional pull.” Bruce Findlay, managing director for retail at Landsec, echoes a similar sentiment. “Shoppers have a growing desire for diverse experiences at our retail destinations,” he says. “Guests are seeking more than just transactions; they want engaging and immersive shopping experiences. In response to consumer demand for more memorable experiences, leading brands are investing in fewer, bigger, better stores to provide seamless guest journeys and offer enhanced product ranges.” The rise of designer outlets Dan Mason, managing director at retail advisory business Multi-Realm, identifies a shift towards operational real estate. “The discipline of ‘management’ is no longer enough to deliver the returns expected,” he says. “We are seeing specialist retail operating partners increasingly provide a fully integrated property and asset management solution, coupled with other services designed specifically to maximise income and value. “Designer outlets have provided a blueprint for the sector, demonstrating how the operating model can drive the performance of assets, underpinned by collection and sophisticated use of sales data and the strong partnerships that exist between brands and the operator.” He adds: “We are seeing the continued importance of ESG within shopping centres and the socio-economic responsibility they now have within their local communities. As sustainability becomes an increasing focus, centres that emphasise eco-friendly practices and community engagement are likely to attract both consumers and investors.” Across asset types, industry leaders believe a more considered and data-driven approach to leasing is emerging. Louisa Butters, head retail asset management at CBRE Investment Management, says: “In 2024, we saw significantly improved occupier and investment sentiment versus 2023. Leasing velocity markedly accelerated, and we saw exceptional progress at our UK retail schemes in London’s Angel and Epsom. The challenge in 2025 will be to demonstrate rental growth given the limited voids across our portfolios – this is where proactive asset management will be crucial in unlocking potential.” She adds: “The Budget may impact retailers and their ability to expand and maximise their sales. Liquidity is improving on the investment side, but on an asset-by-asset basis, and only with in-depth understanding of the operational asset and the capex requirements. In 2025, we will continue to evolve our schemes to ensure that they remain relevant and attractive destinations that guests want to visit. “We are seeing some of the lessons learned in shopping centres now feeding into retail warehouse schemes, where the market has been active recently. Therefore, consumer insights are becoming increasingly important in these locations in order to remain fit for the future.” Tom Woolven, lead asset manager at Schroders Capital, notes that the firm’s investment focus for 2025 is likely to centre on identifying strategic assets that align with the ongoing shift towards hybrid models of retail. “We expect retail warehouses to continue to attract demand from both occupiers and investors looking to take advantage of the strong rental growth that these assets can bring,” he says. “Meanwhile, the gulf between good shopping centres and ‘the rest’ looks set to widen, as occupiers continue to be drawn to centres that offer best-in-class facilities and a full shopping experience. Therefore, it is important for those investing in the retail sector that they create a diverse occupier mix with an attractive experiential-led environment that combines a range of retail, leisure and F&B brands.” Thomas Rose, co-founder of agency P-Three, warns that the sector will face some disruption as a result of economic uncertainty. “The retail and leisure market will be defined by the impact of persistent economic uncertainty, evolving consumer behaviour and structural shifts in demand. High-value, experiential retail will succeed in areas such as London’s Oxford Street, Bond Street and Covent Garden, but second-tier locations will struggle as footfall remains uneven. The leisure sector is set for a division between high-end offerings targeting affluent consumers and cost-conscious activities catering to the masses. “Investment in high-spec entertainment spaces, particularly immersive and tech-driven formats, is expected to increase. Low-cost or underinvested leisure operators could stagnate without proactive refurbishment and updated offerings.” Simon Morris, joint managing partner of GCW, agrees that 2025 will be a year for shifts and disruption. “Disruption from direct-from-factory players such as Temu and Shein will continue, especially in the fast fashion sector,” he says. “However, continuing focus on and around the consumer will create resilience for brands and places. Measuring the impact of this for both the occupier and the landlord is essential so that they can specifically target consumers and create spaces within places to deliver this outside the envelope of a traditional store.” Photo © Monkey Business/REX/Shutterstock