Savills says that it is anticipating an uptick in investment in retail real estate globally as in some locations retailers are again expanding their store networks, leading to the return of rental growth across a number of prime retail markets driving investor interest.
In the UK, for instance, Q1 2025 saw a 39.2% increase in high street shop investment to £524 million compared to Q1 2024, and shopping centre investment volumes reached £2 billion annually in 2024, the highest since 2017 and significantly above the annual average of £1.3 billion achieved over the last eight years.
In its Impacts thought leadership programme Savills says that ecommerce, the global financial crisis, the pandemic, a cost-of-living squeeze, extreme weather and geopolitical uncertainty have all threatened to derail the sector globally. Yet, the international real estate advisor says that the much-predicted wave of store closures has largely failed to materialise, although the situation remains complex. However, as rents have rebased, demand from occupiers has driven a fresh investment and development impetus.
Oliver Salmon, Director, Capital Markets, Savills World Research, explains: “There remain some investors deterred by previous forays into retail, and global institutional allocations to retail have dropped from 28% in 2018 to 11% today, but many investors are beginning to look again. In 2024, global retail investment was broadly stable, with momentum building in the second half of the year and, supported by some marquee transactions, retail real estate has attracted an increasing share of institutional capital. However, the nuanced recovery requires careful asset selection by buyers.”
Savills says that asset repricing has provided interesting opportunities for investors. Yields are particularly attractive relative to other popular sectors, such as living and logistics, which need continued strong rental growth to underwrite and are relatively tightly priced due to the weight of capital pursuing them.
In Asia Pacific, the retail sector is demonstrating growth potential, although its recovery has been mixed. Australia, Malaysia and India experienced growth in retail investment in Q4 2024 due to increased demand for regional malls. In general, retail occupier markets across the region remain robust, and therefore assets attractive to investors, with Japan especially seeing strong retail sales growth buoyed by inbound tourism translating to low vacancy rates and robust rental growth in key locations.
Retail vacancy rates in the US are at a historic low of 4.7% with strong demand across all categories – including discount, beauty, athleisure, luxury, sport and fashion – driving growth. However, Savills says that some international brands are now pausing or slowing US expansion in response to increased global volatility and looking to Canada for greater regional exposure.
Savills says that a lack of new development in Europe is ostensibly good news for the value of existing retail real estate. Prime flagship malls and specialist sub-sectors such as retail parks and designer outlets generally continue to perform well.
“Global uncertainty has led to some sectoral cooling in Europe, but the flight to prime continues, with retailers pursuing the best locations and opportunities,” comments Larry Brennan, Head of European Retail Agency, Savills. “Right-sizing is also a persistent theme, driving both opportunities and activity.
“The bellwether sectors remain sports and athleisure, along with value fashion brands, which continue to transact the highest volumes of space on high streets and city centre locations. The retail park sector also remains resilient, with limited availability in most markets, backed by very strong levels of demand.”