Commercial Quarterly Examiner – retail market update Q1 2026

According to March’s BRC Retail Sales Monitor, an early Easter provided a much-needed boost to food sales. Non-food performance was more uneven: demand was robust for computers, toys, and homeware, but clothing and footwear continued to struggle.

The disruption to international travel caused by the Middle East conflict also hit sales of travel related goods.

All retail sales increased by 3.6% year on year in March, against a growth of 1.1% in March 2025. This was above the 12-month average growth of 2.6%. In-Store Non-Food sales increased by 1.4% year on year in March, against a decline of 0.1% in March 2025. Shopping centres outperformed other locations, and cities like Manchester continued to do well, but overall growth fell short of expectations. Online non-food sales increased by 0.1% year on year in March, against a growth of 1.8% in March 2025. This was below the 12-month average growth of 1.0%. The online penetration rate (the proportion of non-food items bought online) decreased to 37.6% in March from 38.1% in March 2025.

The impact of the war in the Middle East was highlighted in the latest trading statement from Next. It set out an assessment of the impact on the business of the war, increasing its estimate of the cost of the conflict from an initial estimate of £15 million to £47 million. Across its UK business, Next anticipated cost increases in transporting goods from suppliers to the UK, distribution within the UK, and energy costs and plans to offset these costs by cost savings and margin gains.

Occupational view

• The UK is experiencing a reduction in retail space as secondary shopping centres are repurposed for mixed-use urban regeneration.
• As the amount of retail space available to let increases and take-up decreases any upward pressure on rents is easing. Retail Parks remain the strongest retail segment.

In March 2026 annual take up of all retail space was -18.8% lower than a quarter earlier and -36.0% lower compared to the same quarter last year. Shop and Shopping Centre net absorption rates were negative but Retail Park net absorption was positive for the second successive quarter. A negative reading indicates that more space is being released onto the market than is being let. In Q1 nationwide Retail Park lettings increased after falling for the previous four consecutive quarter. However, y-on-y take up has decreased by -36.4%. The amount of Shopping Centre space let fell by –18.2% y-on-y and take-up was -60.2% lower than the same quarter last year. The amount of traditional retail space let y-o-y decreased by –18.8% in Q1 compared to Q4 2025 and has not risen for five consecutive quarters.

The UK has recently seen a notable reduction in the stock of retail space. A net 800,000 sf of retail space was lost in 2025, followed by a further 700,000 sf reduction in Q1 2026 as secondary shopping centres are being repositioned away from traditional retail toward mixed-use urban regeneration. The Oastler Centre in Bradford developed in 1970 from a previous open-air market was closed in June 2025. The site is now being redeveloped as part of the “Bradford City Village” scheme, which aims to create up to 1,000 new homes, public spaces and mixed use development in the city centre. The Core in Leeds was originally developed in the 1960s and re-launched in 2009 but Town Centre Securities are now proposing a mixed-use re-development including Grade A offices, student accommodation and residential uses.

The amount of all UK retail space available to let increased by 2.0% in Q1 having fallen for the previous four quarters. Shopping Centre availability rose by 2.8% but Retail Park availability decreased for the fifth consecutive
quarter. The availability of traditional shops increased by 2.1%.

Up to 150 out of more than 400 former WH Smith stores could close as part of a restructuring plan that is set to be implemented by Modella Capital, the specialist retail and consumer investment boutique which acquired part of the business in June last year. Previously Modella Capital announced that it would close all 154 stand-alone Claire’s stores in the UK and Ireland. It also owns Hobbycraft, the arts and craft retailer. Modella cited “highly challenging trading conditions over the past year”, “weak consumer spending and cost-of-living pressures” as reasons for the closures, alongside “rising operating costs as a direct result of government policy and recent geopolitical events”.

All Shopping Centre market rental value (MRV) growth increased to 1.8% in the year to March from 0.6% y-on-y in Q4 2025 and 1.7% in Q1 2025. Retail Park rental growth continues to be stronger but decreased to 2.6% in the 12-months to March from 3.1% y-on-y in December last year. Standard High Street shop MRV growth has now been negative for four consecutive months. Growth of -2.4% y-on-y in December eased further to -2.6% in March.

In Central London shop MSCI recorded MRV growth of 4.6% y-on-y in March increasing from 2.8% in the 12 months to December. Shaftesbury Capital own and manage a portfolio of 2.8 million sf of lettable space London’s West End including a broad mix of shops, restaurants, cafés and bars in Covent Garden, Carnaby Street, Soho and Chinatown. In its latest report the REIT reported significant rental growth in each of its locations with 434 leasing transactions completed during the year, 10.3% ahead of December 2024 MRV.

Investment view

• Investment performance has weakened leading investors to scale back their transactional activity. But quality has replaced quantity.
• For those investors still active, the relatively high yields available have ensured liquidity in the prime parts of the market.

High income returns and a re-rating in yields continue to drive strong performance numbers from the Retail Sector relative to the All-Property average. However, Shopping Centre total returns decreased to 8.8% y-on-y in Q1 from 10.0% in December. Retail Park total returns slipped down to 8.0% y-on-y in March from 8.5% in September. High Street shop performance increased slightly in Q1 as total returns increased to 8.9% from 8.8% in Q3.

The indices suggest that yields for High Street shops in general have hardened by 125 bps in the year to end December and hardened by a further 24 bps in Q1. Central London yields softened / increased by 31 bps y-on-y in Q1. Shopping Centre yields softened / increased by 18 bps in Q1 and by 54 bps over the 12 months to March. Although Retail Park yields have hardened by 12 bps in the last year, they increased by 1 bp in Q1.

Retail Park investment volumes¹ decreased y-on-y in Q4 by -42.2% to £1.661 billion in 235 transactions or, £1.651 billion in current value terms, from £2.874 billion (£2.841 billion) in 364 transactions in Q3. Shopping Centre investment volumes decreased y-on-y in Q4 by -25.9% to £3.507 billion in 110 transactions or, £1.415 billion in current value terms, from £4.732 billion (£1.880 billion) in 138 transactions in Q3. Investment in traditional high street shops decreased q-on-q throughout 2025. Preliminary estimates indicate that All Retail investment volumes decreased by a further -14.0% to £5.489 billion (£4.788 billion) in 4,929 transactions in Q1.

At the end of the quarter the Waitrose and John Lewis at Home store on Crane Boulevard / Futura Park in Ipswich was sold for approximately £28.6 million (7.1% NIY). The combined supermarket and store of 71,000 sf with around 409 car parking spaces, was developed in 2012, and is fully let to the John Lewis Partnership on a long lease running to 2037. This was another acquisition by ATLAND on behalf of French real estate investment fund Épargne Pierre Europe. Although the wider UK investment market has had a rocky 2026 so far, there has still been a reasonable churn of retail park deals. Banbury Cross Retail Park was sold to Melford Capital for around £40m. The Oxfordshire park was bought by 9Yards, Melford Capital’s retail parks arm, which already owns and manages several other out-of-town assets. Realty Income Corporation has also completed the purchase of £320m of retail parks across two deals. It
bought a collection of eight retail warehousing assets from Tristan Capital Partners for £250m, after twice expanding negotiations to acquire more parks than it had first planned to. Elsewhere, Realty has completed the purchase of £68m of regional retail parks from South Street Capital.

However, Q1’s headline transaction was the sale of Merry Hill Shopping Centre in the Black Country for £290 million by a consortium of lenders to Intu, the shopping centre REIT which fell into administration in 2020. The mall developed between 1985 and 1990 on the site of a former steel works contains 1.6 million sf of retail space in more than 200 stores, with 10,000 parking spaces. Current anchor tenants include Marks & Spencer, Primark, Asda and Next. Leisure operators include Hollywood Bowl and Odeon Cinemas. There are also around 40–50 food, drink and café operators across the centre including roughly 10–15 full-service restaurants and bars, plus a large central food court. The centre was acquired by Redical, an investment and asset management company focused on owning and operating major retail and mixed-use destinations. It was founded in 2020 by Finnish real estate investors, and its current UK portfolio also includes Victoria Leeds, The Liberty Centre in Romford and Clayton Square, Liverpool.

^{1 Investment volumes are the quarterly value of investment transactions adjusted for capital growth over the analysis period and provide a measure of transaction activity that is not obscured by changes in value.}

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