Commercial Quarterly Examiner – retail market update Q4 2025

According to January’s BRC Retail Sales Monitor , the 2025 festive trading period was marked by
volatility but enjoyed a post- Christmas rebound in physical store footfall and sales.

Many Non-Food categories were sluggish, with a few bright spots, including Toys, Home Accessories and Gaming. Retail sales were up 1.2% in 2025 compared to growth of 0.4% in 2024.

In a Christmas Trading Statement, Next reported that growth in the UK slowed but not by as much as expected. UK growth was +5.9%, compared to previous guidance of +4.1%. International Online sales were up +38.3%. Next expects continuing pressures on UK employment are likely to filter through into the consumer economy and growth to be lower in 2026.

At M&S, Food performed strongly with like – for – like food sales up 5.6%. Fashion, Home & Beauty sales decreased 2.5 % as online sales growth was offset by a decline in store sales. This performance reflected reduced high street footfall, and the continuing impact of the data breach earlier in the year. New and refurbished stores outperformed the rest of the business, with new locations such as Cannock and the recently extended Chiswick store
exceeding expectations.

Occupational view

• Availability continued to fall for the fourth consecutive quarter, mainly due to conversions to alternative uses rather than new lettings.
• Rental value growth continues across the retail sector. Shopping Centre and Retail Park rents continue to improve. Particularly strong MRV growth in Central London was balanced by weaker market conditions in the South East and Rest of UK.

In December 2025 annual take up of all retail space was -20.3% lower than a quarter earlier and -28.4% lower compared to the same quarter last year. However, all retail net absorption rates were positive for the second quarter. A negative reading indicates that more space is being released onto the market than is being let.

Weak take-up was experienced across all retail formats in 2025. In Q4 nationwide Retail Park lettings fell for the fourth consecutive. Between December 2025 and December 2024 y-on-y take up has decreased by -32.9%. The amount of Shopping Centre space let fell by –22.4% y-on-y and take-up was -30.9% lower than the same quarter last year. The amount of traditional retail space let y-o-y decreased by –17.3% in Q4 compared to Q3 and has been falling for four consecutive quarters.

Ikea is shifting focus from out-of-town megastores to compact urban formats in Britain due to rising property taxes and changing shopping habits. This strategic shift, influenced by factors like the new surcharge on commercial properties, aims to improve fulfilment, click-and-collect, and in-store services. The success of smaller stores like Oxford Street and Brighton has prompted Ikea to explore mid-sized stores in retail parks as well.

The amount of all UK retail space available to let decreased for the fourth consecutive quarter by -2.4% in Q4. Shopping Centre availability fell by -1.3% and Retail Park availability decreased by -5.0% having previously fallen by -17.6% in Q3. The availability of traditional shops decreased slightly by -2.5%. As take-up is also decreasing it is possible that this decrease in availability is being driven by the conversion of retail premises for alternative use.

The Chimes Shopping Centre in Uxbridge secured three new restaurant lettings in the former Debenhams space to Pizza Express, Taco Bell and Afrikana. Pizza Express opened a 3,000 sf restaurant on the High Street before Christmas, while Taco Bell has taken a 3,800 sf unit over the ground and mezzanine floors and Afrikana has also taken 3,200 sf.

All Shopping Centre market rental values (MRV) have grown by 2.7%% in the year to December, the same as in September and an improvement on growth of 1.8% y-on-y a year earlier. Retail Park rental growth continues to be stronger and was 2.9% in the 12-months to December 2025, as it was in September. Strongly positive MRV growth for standard high street shops continued in Q4 2025 although growth of 6.9% y-on-y in September fell to 6.1% in December. There is, however, a noticeable division between y-on-y growth of more than 9% for Central London shops and less than 2% for South East and Rest of UK shops.

Investment view

• The retail sector continues to deliver robust performance, chiefly driven by high income returns but performance from Shopping Centres and Retail Parks has declined since mid-2025, with capital growth and total returns both lower in Q4 compared to earlier in the year.
• Investment volumes across all retail formats have decreased through 2025. Despite this, significant sale-and-leaseback deals and large-scale acquisitions, such as Asda’s £196 million supermarket deal and Hammerson’s acquisition of The Oracle, show that high-value transactions are still taking place, particularly in the Shopping Centre segment.

High income returns and a re-rating in yields continue to drive strong performance numbers from the Retail Sector. However, the indices suggest that yields for High Street shops in general have hardened by more than 100 bps in Q4 while Central London yields have softened by 27 bps. Shopping Centre yields softened / increased by 18 bps in Q4 and by 59 bps over the whole of 2025. Meanwhile Retail Park yields continue to fall by 5 bps in Q4 and 18bps in 2025.

The investment performance of Shopping Centres and Retail Parks has been in decline since June 2025. Shopping Centre capital growth in the year to December 2025 decreased to 0.2%from 2.5% in September and total returns decreased to 10.0% from 12.4% in September. Retail Park total returns slipped to 8.5% y-on-y in December from 10.4% in September. High Street shop performance fell back in Q4 as total returns decreased to 8.8%% from 9.1% in Q3 but were still more than double the performance of 4.0% in the year to December 2024.

Retail Park investment volumes_² decreased y-on-y in Q3 by -17.9% to £2.738 billion in 337 transactions or, £2.707 billion in current value terms, from £3.334 billion (£3.277 billion) in 397 transactions in Q2.

Shopping Centre investment volumes decreased y-on-y in Q3 by -18.7% to £4.352 billion in 126 transactions or £1.727 billion in current value terms, from £5.354 billion (£2.109 billion) in 135 transactions in Q2.

Investment in traditional high street shops decreased q-on-q throughout 2025. Preliminary estimates indicate that All Retail investment volumes decreased by -24.1% to £9.978 billion (£7.164 billion) in 4,846 transactions in Q4.

Whether they are a truly a real estate deal or financial engineering, sale and leaseback transactions have seemingly never gone out of fashion. In Q4 Asda sold ten of its “omnichannel” supermarkets that support both in-store and online operations in a sale-and-leaseback deal. The total value of this sale was £196 million. These 10 stores were acquired by a joint venture (JV) between Supermarket Income REIT and Blue Owl Capital. Asda will lease back the properties under 25-year leases, with an option to extend for a further 10 years. Rent reviews are linked to CPI (Consumer Price Index) inflation, with a cap of 4% and a floor of 1% per year. The “passing rent” (i.e., the current rent Asda will pay) averages at £19.90 per sf.

Hammerson continued to buy out its shopping centre investment partners and acquired the remaining 50% interest in The Oracle shopping centre in Reading for £104.5 million. This acquisition, funded from existing cash, provides a stable yield and the opportunity to capture future growth. The Oracle has seen recent repurposing, additional leasing deals, and increased occupancy, with further value unlocking opportunities planned.

Other Shopping Centre investment transactions were also prominent in Q4 including USA based Realty Income’s acquisition of The Lexicon shopping centre in Bracknell for £150 million; the purchase of St James Quarter, Edinburgh for £250 million by Unibail-Rodamco-Westfield; and Fraser Group’s acquisition of Braehead Shopping Centre, Glasgow and Swindon Designer Outlet.

^{2 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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