Commercial Quarterly Examiner – retail market update Q2 2025

In Q2 the UK’s retail real estate market benefitted from supportive underlying macroeconomic conditions.

According to the BRC Retail Sales Monitor total retail sales increased by an annual 3.1% in June, against a decrease of 0.2% in June 2024.

In-store non-food sales increased by 2.2% y-o-y in June, compared to a fall of 2.6% in June 2024. Online Non-Food sales increased by 2.3% year on year in June, against a decline of 0.7% in June 2024. The online penetration rate being the proportion of Non-Food items bought online of 36.6% was slightly below the 12-month average of 36.8% and unchanged compared to June 2024.

As is customary, the increase in UK sales was attributed to the weather as soaring temperatures increased the sales of electric fans while sports and leisure equipment sales were boosted by both the weather and the start of Wimbledon.

In May, Next plc released its trading statement for the first quarter of the year. UK online sales increased by 8.9% and retail sales rose by 5.2%. All UK sales growth was 7.3%. Much of the strong performance in the first quarter was the result of warmer weather, which benefited the sale of light-weight summer clothing. But it is likely that some of these sales have been pulled forward from Q2.

Marks & Spencer (M&S) revealed its results for the year ending March 2025 in May. Fashion, Home & Beauty sales increased 3.5%, with like for like (LFL) sales up 4.4%. Food sales increased 8.7%, with LFL growth of 8.6%. The cyber-attack which “had a significant impact that will endure for some months” was after the financial year-end. M&S is opening an additional 12 large standalone food stores on former Homebase sites, eight of which will be trading by July 2026.

Occupational view

• More retail space is being vacated than newly occupied. However, Retail Parks are benefitting from increasing demand.
• The sector remains a dynamic environment as administrations for some retailers continue as other retailers plan expansion and shop openings.

The amount of retail space available to let decreased by -0.3% in Q2 across the UK. Shopping Centre availability fell by -1.5% and Retail Park availability decreased by -12.7% but the availability of traditional shops increased by 1.6%.

However, net absorption rates for the whole retail market have been negative in each of the last five quarters, indicating that more space is being released onto the market than is being let.

In March 2025 annual take up of all UK retail space was 1.7% lower than a quarter earlier compared to -5.0% in March 2024. Some locations, especially in London and the South East, have registered improving take up.

Retail Park MRV growth has recovered since 2021 due to low vacancy rates and strong tenant demand, especially for prime parks. The rationalisation of the Carpetright and Homebase portfolios last year released available space, giving landlords the opportunity to let units on retail parks that were either fully occupied or had low vacancy rates. Many new lettings resulted in higher rental levels, contributing to the growth in prime retail park rental values. However, the amount of Shopping Centre space let fell by –9.0% y-on-y compared to an increase of 5.4% in Q1 2024 and the amount of traditional retail space let decreased by -2.6% y-o-yin Q1 2025 and -4.1% in Q1 2025 y-o-y.

The High Street remains a volatile environment. Poundland, which has 825 UK stores was sold for £1in June after it entered administration. Up to 100 stores are likely to close as a result of a restructuring exercise. At the same time, JD Sports tripled the size of its flagship store at Manchester’s Trafford Centre opening a 41,000 sf store, featuring a 92-metre frontage. Similarly, Foot Locker opened its largest UK store in Birmingham Bullring. Aldi plans 10 new stores and 30 upgrades in 14 weeks, aiming for 40 openings this year and Zara plans to open a new flagship store on London’s Oxford Street. The new store, located near Tottenham Court Road Tube station, will be Zara’s fifth on Oxford Street.

All Shopping Centre market rental values (MRV) have grown by 1.9% in the year to June, up from 1.4% in June last year. Retail Park rental growth is stronger and reached 2.5% in the 12-months to June 2025, up from 1.4% in June 2024. MRV growth for standard high street shops has also been improving, to 1.9% in the year to June from 1.1% a year earlier. Rental growth, however, is not consistent across every centre.

High Street vacancies in central Oxford have reached a 15-year high. Leasing has been particularly subdued in the city centre. The largest deal this year was Waterstone’s acquisition of the former Topshop store as it downsized to 5,300 sf from the 15,000 sf it had previously occupied since 1998. The Topshop unit had been vacant since its administration in 2021. In contrast, Oxford’s retail parks have experienced healthy demand and vacancy rates of just 3% as free parking, easy car access, lower rents, and the “one-stop shop” appeal to consumers and retailers alike.

Investment view

• Shopping Centre outperformance is driven by high levels of income return.
• Investors are returning to the sector attracted by the out performance of Shopping Centres and Retail Parks.

High income returns and a slight re-rating in yields continue to produce some strong performance numbers from Shopping Centres and Retail Parks.

Shopping Centre capital growth in the year to June 2025 amounted to 3.1% and total returns were 13.0%, unchanged from March 2025 but a significant improvement on 4.9% in June 2024. Retail Park total returns slipped a little to 11.0% y-on-y in June from 13.0% in March, but were still well up on 2.5% in March 2024. The performance of High Street shops has also improved, with total returns climbing from -0.2% in June 2024 to 7.2% in June 2025.

The superior recent performance of Retail Parks and Shopping Centre have prompted activity from investors. Retail Park investment volumes on the year were 15.2% higher in June compared to March and 158.5% higher than in June 2024. Shopping Centre investment volumes y-on-y were 10.5% higher in June 2025 compared to March 2025 and 108.9% higher than in June 2024. Investment in traditional high street shops continues to slide.

Global real estate investment manager, Hines, increased its exposure to UK retail parks through its acquisition of The Peel Centre in Bracknell in June, from Landsec for £49 million, who had previously listed the asset for sale in 2019 for £62 million. The park contains 168,000 sf let to Poundland, Halfords, Pets at Home, Currys, Home Bargains, The Range, Dreams, Tapi Carpets, Consol Suncentre, and others. Hines had previously bought Junction 27 Retail Park, Birstall for £54.6 million and Drakehouse Retail Park, Sheffield for £50.75% reflecting a net initial yield of 7.0%.

Quarterly London retail Investment volumes increased by 47% to £751 million in June 2025 compared to £511 million in March 2025 and by 15% from £652 million in June 2024. In Q2, Aprirose, a private limited company with a balanced multi-sector portfolio, acquired a mixed-use portfolio in St John’s Wood, London NW8, an affluent Central London neighbourhood, renowned for Lords Cricket Ground and the Abbey Road Studios, for £65 million. The portfolio includes 32 retail and 75 residential units, with 19 car parking spaces.

Ares Management Corporation, a global alternative investment manager, furthered its UK real estate investment strategy by the purchase of 10 Brook Street, W1, for £43 million. The multi-let building includes a flagship Issey Miyake store on the ground floor. In 2024 Ares was raising funds for its Ares European Property Enhancement Partners IV fund targeting European and Particularly London real estate.