Core fundamentals of the occupational market continue to hold steady, despite domestic and international economic challenges. Shopping centre investment volumes showed a partial recovery in Q2, with the pipeline of high-quality assets coming to market looking strong.
Retailers' tax burden is passed directly to the consumer, keeping prices elevated
UK prices increased by 3.6% over the twelve months to June, with the rise largely attributed to higher costs in food, fuel, and services. The Consumer Price Index (CPI) climbed unexpectedly from 3.4% in May, remaining well above the Bank of England’s (BoE) 2% target.
Many retailers argue that the additional tax burden on businesses, stemming from Chancellor Rachel Reeves’s 1.2-percentage-point increase in employer National Insurance Contributions (NICs) introduced in April, has directly contributed to rising consumer prices. This fiscal measure, combined with a 6.7% uplift in the National Minimum Wage, has significantly increased labour costs across food production, logistics, and retail operations. As a result, many operators have found it unsustainable to absorb these costs, leading to price increases for their consumers.
Rising wages and supply chain costs continue to intensify seasonal pressures, sustaining amplified levels of food inflation
Food inflation has risen as the increased tax burden has raised costs for farmers; costs which are passed along the supply chain to retailers who, experiencing their own labour cost increases, have subsequently passed these costs on to their consumers. The consequence of last autumn's Budget has therefore compounded the impact of more common factors that negatively influence food prices, intensifying the impact on food inflation in particular.
Extreme weather, both at home and abroad, such as floods, droughts, and heatwaves – supercharged by climate change – have impacted crops in the UK as well as key supplier countries like Spain and Morocco
Sam Arrowsmith, Director, Commercial Research
Most recently, the cost of producing fresh produce has risen. Extreme weather, both at home and abroad, such as floods, droughts, and heatwaves – supercharged by climate change – have impacted crops in the UK as well as key supplier countries like Spain and Morocco. Heavy rainfall across the UK during spring 2025 left fields waterlogged, delaying planting and damaging crops. Furthermore, farmers have also faced higher input costs for fertiliser, energy, and packaging – costs that have also been passed down to the consumer.
Fuel prices haven’t dropped enough to offset inflationary pressures – especially when compared to the sharper declines seen in 2024
The rising inflation in June has also been driven by fuel prices in the UK, which haven’t dropped as sharply as they did this time last year. In June 2025, petrol and diesel prices were down 9.4% and 8.7%, respectively, compared to June 2024 – but last year saw a much steeper decline from peak levels. While prices are lower, the rate of decrease is less dramatic, making the inflation impact more noticeable. Mid-June also saw a spike in crude oil prices following Israeli strikes on Iranian infrastructure, raising fears of supply disruption through the Strait of Hormuz. This geopolitical tension has also temporarily kept wholesale costs elevated.
In addition, a softer sterling against the US dollar has meant imported oil has become more expensive, and will remain so even if global prices ease. Moreover, despite falling wholesale costs, retailers have been slow to pass savings onto consumers, with supermarket and fuel station operators keen to rebuild margins after a tough 2024, which has kept pump prices elevated.
Seasonal demand in summer travel and freight activity has also sustained higher fuel consumption, supporting higher prices even when supply stabilises. While fuel prices are technically lower than last year, they haven’t dropped enough to offset inflationary pressures – especially when compared to the sharper declines seen in 2024.
Rising service costs fuel persistent core inflation, reflecting structural price pressures
Service inflation has also proved to be sticky – particularly in June 2025, when it held steady at 4.7%, defying expectations of a slowdown. Again, the growth in the National Minimum Wage alongside broader wage growth has pushed up labour costs in service-heavy industries like hospitality, healthcare, and education. Meanwhile, rising regulated charges have also added upward pressure on prices. April brought hikes in road tax, water bills, and council tax – costs that are embedded within service expenses and tend to persist in inflation metrics.
In addition, rents also rose sharply in early 2025, contributing nearly a full percentage point to services inflation. These costs are slow to reverse and can heavily influence CPI. Meanwhile, education and healthcare costs saw significant price rises also – education costs jumped 7.5% YoY according to the Office for National Statistics (ONS), while healthcare costs rose due to staffing shortages and wage hikes.
Services inflation is considered more persistent than goods inflation because it’s driven by domestic factors like wages and rent, rather than global commodity prices. Indeed, it is this stubborn service inflation that has been the key driver behind the parallel rise in core inflation also. As of June 2025, UK core inflation – which excludes volatile items like food, energy, alcohol, and tobacco that are influenced much more by seasonal or external factors – rose to 3.7%, up from 3.5% in May, according to the ONS. This marks the highest core inflation rate since January 2024, and it’s a key reason why overall inflation surprised to the upside.
This entrenched inflationary backdrop presents a challenge for the BoE, which closely monitors core trends when setting interest rates. With services inflation remaining stubbornly high, policymakers may be forced to delay rate cuts, even as headline inflation shows signs of easing, in order to avoid prematurely loosening monetary policy and risking a resurgence in inflation.
Labour market uncertainty and global economic volatility contribute to further rate relief caution
Recent economic commentary suggests the probability of an August rate cut has fallen from near-certain to barely 50/50, amid a complex economic backdrop of persistent inflation, labour market uncertainty, and global economic volatility.
In June 2025, UK unemployment rose to 4.7%, marking a four-year high and indicating growing slack in the labour market (underutilisation of labour and productive capacity). This slack typically suppresses inflationary pressures, as reduced demand leads to slower wage growth and weaker consumer spending. However, despite these signs of cooling, wage growth across sectors remains robust, sustaining cost pressures on businesses and keeping core inflation elevated. This tension has prompted the BoE to exercise caution; while labour market softness might normally justify interest rate cuts, persistent wage-driven inflation signals that the economy isn’t cooling uniformly. As a result, the Bank is likely to wait for more definitive evidence of broad-based moderation before easing monetary policy.
Furthermore, as the end of the 90-day pause approaches, the UK faces renewed economic pressure from the reactivation of President Trump’s tariff strategy. While limited relief has been secured – such as zero tariffs on aerospace goods and a quota for tariff-limited automotive exports – key sectors, including steel, aluminium, and potentially pharmaceuticals, remain exposed to significant trade levies. These tariffs are expected to raise costs for UK businesses, many of which may also choose to pass the burden onto consumers, contributing to elevated domestic inflation. This inflationary pressure, compounded by existing wage and energy costs, will further constrain the BoE’s ability to pursue interest rate cuts, leading to a more cautious monetary stance despite broader signs of economic slowdown.
Economists estimate that if current energy prices hold, UK inflation could rise by 0.1 percentage points in Q3
Sam Arrowsmith, Director, Commercial Research
Moreover, the ongoing conflict in the Middle East is another potential global disruptor that could push UK inflation higher, mainly through energy and trade-related channels. The region is a major hub for global oil and gas. If tensions escalate, especially with threats to the Strait of Hormuz (a key shipping route for 20% of global oil), Brent crude prices could spike to $100–110 per barrel, according to Goldman Sachs. A $10 increase in oil prices typically adds 0.1 to 0.2 percentage points to UK inflation, both directly (including fuel and energy bills) and indirectly (through transport and production costs).
Conflict could also disrupt shipping through the Red Sea and Suez Canal, key routes for UK imports. This would raise freight costs and delivery times, feeding into higher prices for goods. This, of course, would very likely further increase consumer budgetary pressures. Higher energy and transport costs could raise household bills and food prices, potentially triggering a new wave of cost-of-living strain.
In short, while the full impact depends on how the conflict unfolds, the UK is vulnerable to energy shocks and global trade volatility. Economists estimate that if current energy prices hold, UK inflation could rise by 0.1 percentage points in Q3; however, while the immediate inflationary impact is modest, the risk premium is rising, and the scale will depend on how the conflict evolves. If energy flows are disrupted or the conflict widens, the inflationary effect could become much more pronounced, in contrast to the uncertainty and slower-burning risk it currently presents.
Against this backdrop of persistent inflation, labour market uncertainty, and global economic uncertainty, the BoE faces a delicate balancing act: easing policy too early could reignite inflation, while delaying may worsen an economic slowdown.
Despite long-term improvements, consumer confidence continues to fluctuate month on month as economic uncertainty prevails
Figure 1 illustrates the close relationship between consumer confidence and inflation. Using a rolling twelve-month average to smooth seasonal fluctuations and capture the underlying trend, the data shows a marked recovery in sentiment since the inflationary peak of October 2022, when the index fell to -33.8. Consumer confidence reached its lowest level in 25 years just five months later, reflecting the deep impact of the cost-of-living crisis. Since then, the yellow line in Figure 1 charts a steady improvement, with the index rising to -18.7 by June 2025, currently sitting significantly above the long-term average.
Nevertheless, if we look at the GfK Consumer Confidence Index on a year-on-year (YoY) basis, the monthly results are much more nuanced (Figure 1). As the consumer digests the monthly news cycle, confidence inevitably fluctuates. Retailers warning of higher prices, exporters warning of cancelled orders, and businesses warning of job cuts undoubtedly negatively impact consumer sentiment and potentially lead to a tightening of purse strings for many. Conversely, as the BoE tinkers with interest rates in an attempt to counter any economic downturn, sentiment improves for some and encourages more spending, hence the see-saw nature of the monthly consumer confidence trendline in real terms.
To illustrate, apprehension surrounding the impact the new government’s first Budget would have on consumer finances back in September last year seemed relatively short-lived, with the months following seeing improvements in consumer optimism. The GfK’s overall consumer confidence index improved to -17.0 in December from -21.0 in October.
However, the index subsequently worsened to -22.0 for January before improving again in February (-20.0) and March (-19.0), clearly highlighting the unstable nature of the UK consumer’s attitude toward the current economy. The recording for May saw the inevitable, with the index swinging back to negative growth following the uncertainty the US tariff proposals placed on the global economy, rising inflation and the BoE’s June announcement to hold interest rates at 4.25%.
Nevertheless, consumer confidence in the UK saw a modest improvement in June 2025, rising two points to -18. This uptick was largely driven by brighter sentiment around the general economic outlook, with consumers feeling slightly more optimistic about the next twelve months. Notably, while views on personal finances remained unchanged, expectations for the broader economy also improved; analysts suggest this reflects growing resilience despite persistent inflation and global uncertainties like Middle East tensions and tariff disputes.
However, confidence remains fragile, as rising oil prices and cost-of-living pressures continue to weigh on household budgets. While the improvements are encouraging, they highlight a flicker of optimism rather than a full recovery. Interestingly, Deloitte’s Consumer Tracker showed a decline in overall confidence, citing worries about job security, personal debt, and a slowing labour market. However, even in Deloitte’s data, sentiment toward the UK economy itself improved, suggesting that consumers may be separating their personal financial concerns from broader macroeconomic expectations.
In short, June’s slight uptick in GfK’s consumer confidence reflects tentative optimism about the economy, even as personal financial pressures and global risks continue to cast a shadow. Will this optimism last? It seems that any measure of consumer confidence is volatile and seemingly worsens with any potential emerging economic challenge, before conceivably improving when the potential impacts are perhaps better understood.
Despite rising consumer optimism, UK retail continues to feel the strain of persistent inflation and uneven spending trends
UK retailers entered 2025 on a high note, delivering their strongest quarterly performance since summer 2021. According to the ONS, retail sales (excluding fuel) rose by 1.8% in Q1 compared to Q4 2024, with a 2.0% increase YoY. This marked the third consecutive month of growth, driven largely by high street staples such as clothing and footwear, which saw a 3.7% surge in March and averaged 1.5% monthly growth across the quarter. The figures reflected a rebound in consumer activity, supported by seasonal demand and promotional campaigns.
However, this momentum faltered in May, exposing the fragile foundations of the recovery. Despite a modest uptick in consumer confidence – driven by cautious optimism about the UK’s economic outlook – retail sales by value edged down 0.1%, while volumes fell by 1.3%, marking the steepest monthly decline since December 2023. The widening gap between value and volume underscored the persistent impact of inflation, with households spending similar amounts but receiving less in return.
June brought a partial rebound, with retail sales values rising 3.5% and volumes up 1.8%, buoyed by seasonal factors including the warmest June on record. The heatwave spurred demand for food, drink, and fuel, lifting sales. However, the recovery remained uneven, with discretionary spending still subdued and non-food store volumes rising just 0.2%, held back by lower footfall and patchy demand.
Business rate reform could further temper positive recovery across UK high streets
The UK’s latest business rates reform – announced by Chancellor Rachel Reeves – is set to reshape how commercial properties are taxed, with major implications for retailers, hospitality venues, and high street businesses.
The overhaul, set to take effect from April 2026, introduces a higher surcharge on large commercial properties with a rateable value above £500,000 – expected to add £600 million in tax burden to major retailers and supermarket operators.
At the same time, the reform will introduce lower rates for smaller businesses. Retail, hospitality, and leisure (RHL) properties with rateable values below the £500,000 threshold will benefit from permanently lower multipliers, aimed at easing pressure on high street shops.
However, interim changes for the 2025–26 financial year have reduced RHL relief from 75% to 40%, leaving many independent retailers facing steep rate increases and heightened financial pressure in the meantime, as they wait for the rates reform to kick in.
Furthermore, although the reforms aim to rebalance the tax system, industry groups including the British Retail Consortium and leading retailers like M&S and Tesco have warned they could accelerate store closures, discourage investment, and shift costs onto consumers as they absorb the new tax burden.
As a result, both large chains and independent businesses are re-evaluating operations amid rising costs and shrinking margins. Small retailers are contending with increased overheads following the current reduction in rates relief, while larger chains anticipate passing on tax costs through price hikes when the reforms take hold in Q2 next year.
The Centre for Retail Research (CRR) forecasts over 17,000 total store closures in the UK for 2025, approximately 14,000 of which will be independent retailers. Meanwhile, a recent BRC survey found two-thirds of retail CEOs plan to raise prices in the coming months, citing rising employment and tax costs – posing further risks to inflation and undermining high street recovery. With the final multiplier rates and relief details due in the Autumn Budget 2025, the sector faces an uncertain outlook as it adjusts to one of the most significant business rates changes in decades.
Financial restructuring is emblematic of retailer cost pressures
Over the past six months, several major UK retailers have undergone insolvency or financial restructuring, reflecting the sector’s vulnerability to inflation, rising wage costs, and shifting consumer behaviour.
Poundland, a major high street discount operator, was sold by Pepco Group to investment firm Gordon Brothers for just £1 in June 2025. The sale triggered a sweeping restructuring plan involving the closure of 68 stores and two distribution centres, alongside a strategic retreat from frozen and chilled food offerings.
Crucially, Poundland is seeking rent reductions across hundreds of locations, with proposals to cut payments by 15% to 75% depending on store performance. The company has classified sites into tiers, with Category C1 stores potentially seeing zero rent payments, and Category C2 sites subject to lease termination with just 30 days’ notice. This aggressive rent strategy is designed to stem losses and stabilise operations, but it places landlords and local economies under pressure. If approved by the High Court in August, the plan will reshape Poundland’s footprint to 650–700 stores, down from nearly 800.
Claire’s Accessories is also undergoing a major restructuring, driven by a looming £355 million debt repayment due in December 2026 and £25 million in losses over the past three years. The company has appointed Interpath Advisory to explore a sale of its UK arm, with up to 90 of its 280 stores at risk of closure and 1,500 jobs potentially affected. Investment firms, including Hilco Capital and Alteri Investors, are reportedly interested, while the US division considers bankruptcy protection for the second time in seven years.
River Island has also formulated a restructuring plan in June 2025, following a sharp decline in sales and rising operational costs. The plan includes the closure of 33 underperforming stores by January 2026 and rent renegotiations on 71 additional sites, with the aim of streamlining its physical footprint and restoring profitability. The proposal is scheduled to be put to creditors for approval in August 2025, and if accepted, it will enable the retailer to secure fresh funding and implement lease adjustments across its estate. The restructuring is being overseen by PwC and is part of a broader strategy to reduce exposure to high fixed costs.
Meanwhile, WH Smith began preparing to divest its high street division in January 2025, which includes Post Office operations and Toys R Us distribution rights. Analysts estimate profits from this arm are under £16 million, prompting talks with potential buyers. In March 2025, the operators announced a formal agreement to sell the high street arm to Modella Capital, with the transaction completed in late June.
The sale covers around 480 stores and 5,000 employees, with plans to rebrand under the TG Jones name – a positive result for the high street. Despite speculation that up to half of the stores could close, only 20 permanent closures have been announced so far. The rebranding of stores is underway, with Derby, Hastings, and Southwick having already reopened as TG Jones after brief closures. The rest of the 480 stores will transition over the coming weeks.
Positively, staff have also remained in place, with TG Jones uniforms and branding replacing WH Smith signage. The product range and services (including Post Office counters) are largely unchanged. WH Smith itself is now refocusing on its more profitable travel retail business, which includes airport, train station, and hospital locations across 32 countries.
Despite cost pressures, the retail landscape remains resilient, characteristic of typical market churn rather than widespread financial stress in the market
Although several major UK retailers have undergone financial restructuring in recent months, the broader impact on the high street has been limited. There has been minimal insolvency activity leading to administration, and very few permanent exits from the retail landscape. According to the CRR, fewer than nine retail operators entered insolvency in the year to April 2025, affecting just 283 stores nationwide – none of which include major multiple high street operators. This is way off its forecast of 17,000 total store closures in the UK for 2025.
Despite targeted closures and operational changes among restructuring brands, core indicators such as footfall, vacancy rates, and retail rents have remained resilient and stable. This suggests a high street that continues to adapt effectively – supported by a mix of diversified tenancy, engaged local communities, and flexible leasing arrangements that help absorb shocks and maintain vitality.
In fact, vacancy across both asset classes remains stable. High street voids are currently at 13.6% according to Green Street, whilst shopping centre vacancy sits at 16.9%. This highlights a negligible quarterly change of -0.1% and 0.1%, respectively, whilst YoY voids have fallen by -0.4% for the high street and -0.7% for shopping centres.
The upshot is that there have been marginally more acquisitions than disposals across both asset classes nationally; thus, at present, the market is merely experiencing its usual churn, characterised by the ebb and flow of the fortunes of different operators, rather than any significant activity related to widespread financial stress.
Footfall also continues to impress on the upside. Figure 2 shows continued positive YoY growth in Q2, matching that we saw in the first three months of the year. Average weekly footfall for Q2 2025 saw a marked improvement compared to the same period the previous year. Shopping centres averaged growth of 1.4% whilst high streets achieved growth of 1.1%. This performance, however marginal, highlights the sector’s increasing resilience in the face of Budgetary cost implications and global economic uncertainty.
Rents see a return to growth as key occupational bellwethers for market performance show further evidence of stabilisation
While vacancy levels have yet to reach thresholds that fully restore investor confidence in the strength of the occupational market, the continued stability in both vacancy and consumer footfall provides encouraging evidence of resilience. Importantly, there is growing demand from operators actively seeking new space, signalling a renewed appetite for expansion and an underlying degree of positivity across the sector.
This momentum is reflected in the rental market. According to Savills in-house data, average headline rents across high streets and shopping centres reached £27.87 in June (four-quarter rolling), marking a 6.9% uplift from Q1. This rebound points to a subtle but notable rise in competitive tension, particularly in well-let locations where occupier interest remains strong – the natural focus of Savills transaction book.
Looking ahead, we may see an increasing divergence in rental values between prime assets and more challenged secondary locations. Operators are adopting a sharper strategic lens when reshaping their portfolios, and assets exposed to elevated vacancy are at risk of further softening. The pricing polarisation evident in the investment market is firmly rooted in occupational performance disparities – especially around rental tone and void rates – which will likely deepen as landlords and tenants respond to evolving demand dynamics.
Legislative overview
The UK Government’s proposal to ban upward-only rent reviews (UORRs), as part of the English Devolution and Community Empowerment Bill published on 10 July 2025, marks a significant shift in commercial leasing. The proposed legislation, particularly Schedule 31, aims to make rent reviews more equitable by preventing clauses that only allow rents to rise, regardless of market conditions.
Bill support and scope
The Bill has broad support within government, and while amendments are expected, political consultants believe it is likely to pass. The ban will apply to new business tenancies under the Landlord and Tenant Act 1954, but not retrospectively – existing leases will remain valid. However, once these leases come up for renewal, they will need to comply with the new rules. Index-linked reviews will still be permitted, but only if they allow for both upward and downward movement. Fixed or stepped rents agreed at lease inception are unaffected.
Anticipated lobbying and SME impact
We imagine that lobbying efforts may focus less on opposing the ban outright and more on questioning its effectiveness in achieving its stated goal of high street regeneration. Most small and medium-sized businesses (SMEs) in the UK already operate under short-term lease agreements – typically five years or less. These shorter leases often don’t include upward-only rent review clauses, or if they do, the impact is limited due to the short duration. So, the proposed ban may not significantly change the leasing reality for many SMEs, because they’re already in arrangements that don’t rely heavily on UORRs.
Sector implications
The retail sector could see mixed effects. Landlords may face reduced income predictability, potentially impacting property valuations and financing metrics. However, tenants, particularly on the high street, could benefit from more balanced rent structures, easing financial pressure and improving viability. The change may also encourage more flexible leasing models, such as turnover-based rents with caps and collars.
Investment outlook
From an investment perspective, the impact is nuanced. The change introduces uncertainty into an already weak market, potentially encouraging a “wait and see” approach and keeping transaction volumes low. However, it may also incentivise landlords to complete leasing deals now, possibly offering rental discounts ahead of the law’s implementation. Comparatively, the UK would still remain aligned with much of Europe, where shorter lease terms and indexation are common, and buyers have long accepted lower yields for shorter income.
Lessons from Ireland
Looking abroad, Ireland’s experience offers useful parallels. When UORRs were banned, their investor demand did not decline – in fact, it was never cited as a deterrent. Furthermore, in markets without upward-only rent reviews, landlords have less incentive to inflate headline rents using rent-free periods or other perks. As a result, the use of such incentives tends to decline, leading to more transparent and realistic rent levels. This shift reflects a move toward genuine market pricing rather than artificially propped-up figures used to support valuations or future rent reviews. When upward-only rent reviews are in place, landlords have a strong motivation to keep headline rents high, because future rent reviews can only go up from that base.
Proactive asset management strategies
In addition, the shopping centre market highlighted the need for asset managers to become more proactive following the change in Ireland. Without upward-only rent reviews, a successful rent reduction negotiated by one tenant could set a precedent, prompting others to seek similar terms. This potentially creates a ripple effect, where multiple units across a scheme experience downward rent adjustments, ultimately impacting overall rental income and asset valuations.
To manage this risk, asset managers in Ireland had to adopt a more strategic and hands-on approach. This included closely monitoring market comparables and tenant performance, maintaining strong tenant relationships to manage expectations, and ensuring the quality and presentation of the asset – for example, through refurbishments or enhanced amenities – to justify rental tone. They also had to consider lease structuring that balanced flexibility with income stability. The visibility and comparability of rents across similar units in shopping centres essentially make the risk of cascading rent reductions more acute.
Timeline and transition
In terms of timing, the Bill could pass by Spring 2026, but may not become law until Autumn 2026 or even Spring 2027. Given that it only applies to new leases, it could take up to seven years before it affects the entire UK lease landscape. Therefore, while the proposed ban on upward-only rent reviews represents a notable shift in UK leasing norms, there is no immediate cause for alarm. The legislation is still in its early stages, with implementation unlikely before late 2026 or early 2027, and it will only apply to new leases. This means the full impact will unfold gradually over several years.
Moreover, the UK is not alone in moving toward more flexible rent structures – many global markets have long operated without UORRs, and investor appetite has remained resilient. For landlords and investors, this is a moment to adapt, not retreat. There are clear opportunities to get ahead of the curve by securing leases under current terms, refining asset management strategies, and focusing on quality and tenant alignment. In short, while the landscape is evolving, it’s not a cliff edge – it’s a manageable transition.
Shopping centre investment
The UK shopping centre investment market saw a notable resurgence in 2024, with total transaction volumes reaching £2.0 billion by year-end — the highest level recorded since 2017. This marked a significant uplift from the eight-year average of £1.3 billion (47 deals annually) and a sharp increase from £1.2 billion in 2023.
At the start of 2025, momentum appeared set to continue, buoyed by the scale and quality of assets expected to come to market. Initial forecasts projected volumes could reach £2.5 billion by year-end. However, unforeseen geopolitical developments — particularly the reintroduction of US tariffs under the Trump administration — have since dampened investor sentiment and delayed several large-scale transactions that were critical to sustaining 2024’s momentum.
The first quarter of 2025 was historically weak, with just £20 million transacted across two assets — the lowest quarterly volume on record. While Q2 saw a recovery, total H1 volumes reached only £483 million across eleven deals, representing a 40% decline on H1 2024 and a 61% drop compared to H2 2024.
Despite this slowdown, the issue appears to be one of supply rather than demand. Investor appetite — particularly for prime and super prime assets — remains strong. However, the market is constrained by a lack of available product, especially in the £100m+ bracket. Many institutional owners are opting to hold assets, potentially anticipating improved pricing conditions as interest rates ease.
Encouragingly, the debt markets have rebounded. Concerns around financing have largely dissipated, with improved loan-to-value (LTV) ratios and reduced debt costs making leverage more attractive. In fact, debt availability is now outpacing capital market activity — a reversal from recent years and a positive signal for future liquidity.
Our own analysis suggests c.£3.5 billion of high-quality shopping centre assets are expected to come to market over the next twelve months, comprising approximately 15 assets
Sam Arrowsmith, Director, Commercial Research
Looking ahead, the pipeline is promising. Our own analysis suggests c.£3.5 billion of high-quality shopping centre assets are expected to come to market over the next twelve months, comprising approximately 15 assets. Of this, around £1.1 billion is expected to be in the form of stake sales — raising questions about whether co-owners will consolidate holdings or explore alternative exit routes.
While it’s unlikely that all of this stock will transact (though the Bullring and Grand Central stakes have now been acquired for £319m by Hammerson), the volume and quality of product represent a significant opportunity. However, with multiple exits occurring simultaneously, there is a risk of oversupply in the short term – particularly after a prolonged period of limited availability.
At the smaller end of the market, sub-£25 million schemes continue to trade steadily, forming the backbone of the sector.
Yield performance in 2024 mirrored the uptick in investment activity. Despite rising 20-year gilt yields, shopping centre pricing stabilised across all subsectors. Notably, super prime yields hardened by 25 basis points (bps) over the year, with Savills super prime equivalent yield at 7.75% by the end of the year.
This trend has continued into 2025. In Q2, town centre dominant yields compressed by a further 25 bps on top of the 25 bps seen in Q1, while prime yields have also moved in by 50 bps over the last three months. Further hardening may be contingent on the delivery and successful sale of larger assets, but importantly, yields have not softened despite global economic uncertainty and vendor hesitation.
In terms of investor behaviour, the market is also witnessing a shift. High-net-worth and institutional buyers appear increasingly focused on strategic asset acquisition, sometimes irrespective of broader market dynamics. This signals a potential new era of conviction-led investment, particularly in the core-plus segment and renewed interest from US capital, despite the geopolitical backdrop.
On the occupational side, restructuring activity among major retail operators continues, but the market has shown resilience. Prime schemes are generally able to backfill vacant units, and in some cases, landlords welcome turnover to facilitate rental growth, proactively seeking to reclaim units in fully let schemes to reset rental evidence and drive growth — a tactic reminiscent of the retail warehousing sector.
However, rising operational costs — including changes to National Insurance and the National Living Wage — are putting pressure on low-margin retailer and leisure operators, potentially leading to further insolvencies. Importantly, these challenges are not necessarily rent-driven but reflect broader cost inflation, with rent often being the only controllable expense.
While 2025 has not delivered the explosive growth seen in 2024, the fundamentals of the shopping centre investment market remain sound. The debt environment is supportive, investor appetite is intact, and a strong pipeline of quality assets is emerging. Although geopolitical uncertainty and supply constraints may temper short-term volumes, the medium-term outlook is cautiously optimistic, with plenty of opportunity for well-capitalised and strategically minded investors.
High street shop investment
The high street shop investment sector continues to operate in a stable manner, with a steady flow of institutionally owned assets entering the market over the next 12 months. This movement remains gradual rather than overwhelming, reaffirming the prevailing ‘business as usual’ sentiment. MSCI’s RCA data reflects this trend, showing Q2 urban retail and high street investment transactions totalling £552.8 million—22.3% below the ten-year quarterly average, however, despite this dip, H1 2025 has recorded a combined investment volume of £1.4 billion, marking a 27.6% increase on H1 2024 and a remarkable 106.5% rise compared to H2 2024.
Market activity remains largely static, neither improving significantly nor deteriorating. Pricing appears to have stabilised, with no notable downward movement, maintaining a consistent churn. Investors continue to favour high street retail assets as the income return remains attractive for core holdings, even amid domestic and international economic uncertainty.
While retail warehouse and shopping centre investments have experienced a slowdown – partly attributed to macroeconomic shifts, high street shop investments show more resilience. Particularly for assets priced under £3 million, there is robust demand from private investors. However, for assets priced between £3 million and £5 million, pricing begins to shift and market activity becomes more fragmented.
This indicates growing competitiveness and tightening pricing within the smaller lot size segment, which benefits from greater liquidity. The market is increasingly dominated by private investors, especially in the lower value brackets, with their numbers expanding as lot sizes decrease. Over the past year, the sector has welcomed a number of new entrants, reflecting the granular and accessible nature of high street retail assets.
High street shop investment remains a stable and income-driven segment of the retail property market
Sam Arrowsmith, Director, Commercial Research
Transaction volume remains steady – shaped more by limited stock availability than by external economic fluctuations. Institutional owners, particularly in light of declining defined benefit pension schemes, continue to act as the main source of assets. However, with attractive income returns, many institutional owners may prefer to retain their holdings, resulting in more constrained supply.
Although financial restructuring among operators is making headlines, its impact on investor appetite in this sector has been minimal. Instead, the principal challenge facing the market is the limited audience of buyers for higher-value lot sizes, however, the relative opportunity they represent is increasingly being recognised by large-scale and institutional investors.
Occupational market conditions appear strong, with stabilised vacancy rates and pockets of rental growth, notably among prime assets. We suggest that rack-rented properties offer compelling income returns, often making debt costs accretive and enhancing achievable yields. As autumn approaches, demand seems to be building among private and high-net-worth individuals who are attracted to the long-term income-generating potential of high street investments.
Savills anticipates a modest uplift in capital values, particularly as more assets qualify as prime, supported by a benchmark equivalent yield of 6.5%. For current and prospective investors, the recommendation is to remain confident. The occupational environment continues to show improvement, and well-positioned assets offer generous returns, reinforcing the market’s resilience and value.
In conclusion, high street shop investment remains a stable and income-driven segment of the retail property market. With a continued focus on reversionary yields and solid demand from private investors, the sector offers steady performance and encouraging prospects for long-term investors.