Retail property is bouncing back following some torrid years when it was battered by the Covid-19 lockdowns, then abandoned by investors convinced that online shopping would continue to eat away at the sector’s consumer base.

Centre of attention: prime shopping centres led the retail property revival in 2025, outpacing all other major sectors with 10.2% annual returns

Last year, that story changed. Retail property, led by supermarkets and shopping centres, outperformed other leading property classes in 2025, according to Knight Frank. Its figures show retail real estate produced 9.2% total returns up to Q3 2025, compared with 9.1% returns for industrial assets, 3.2% for offices and 6.6% for all property.

Knight Frank suggests there is more in store for retail investors this year, forecasting that the sector will deliver total returns of around 9.5% in 2026.

So, what are the drivers making retail the hottest property in the market right now?

With capital rushing back to the sector, 2026 could see “decade-high investment volumes”, says Will Lund, partner and head of retail – capital markets, at Knight Frank.

He says that retail’s 2025 performance has drawn a “diverse pool of capital” into the space “which ranges now from private equity, to REITs, to institutional capital – there is a bigger investor audience for retail than we have seen in many years”.

He adds: “Retail warehousing and the supermarket space were both already in high demand, but where shopping centres and the high street perhaps previously lagged behind, both are now outperforming other traditional sectors such as industrials and offices.”

Colliers is even more optimistic about the sector, predicting total retail returns could peak at 10.8% this year, led by shopping centres and retail warehouses. “Rebased rents, improving footfall and strong occupier demand are driving recovery,” says Oliver Kolodseike, head of economic research at Colliers.

Most of the profit, the bottom-line growth, comes out of the physical store portfolios
Will Lund, Knight Frank

Shopping centres are consistently agents’ most touted subsector for solid future returns, topping Savills’ 2026-30 comparative returns list with a projected 8% annual income return.

James Gulliford, Savills’ UK managing director – markets, believes shopping centres will replicate their strong 2025 performance and lead the way for investor returns this year. He says they are “our top pick for the year, as they have relatively high day-one yields and we think performance is going to be driven by sustainable income, rather than necessarily by rental growth”.

He adds: “We are going to see more of the same, as there is a lot of investor appetite, because deals are more readily financeable.”

Within retail, shopping centres and foodstores were the joint top performers in Knight Frank’s 2025 data, each delivering 10.2% returns. Retail warehousing delivered 9.8% returns, while standard shops clocked
in at 7.8%.

Shopping centre transformation

“In the past five years, there has been a massive transformation of what a shopping centre is and that has played a big role in their revival,” says Hannah McNamara, co-founder of retail consultancy P-Three. “The big, dominant shopping centres have added a range of other uses, whether it’s restaurants, bars, gyms or leisure offerings; they have rebuilt the idea of shopping as a pastime rather than a utilitarian process.”

Another key factor has been the fact that penetration rates for online shopping have flatlined at around 28%. With customers flocking back to physical retail locations, retailers and investors are now reallocating capital back into their physical estates to take advantage of renewed consumer interest.

“Online penetration has plateaued because it’s simply annoying buying things online,” says McNamara. “The item is never like what you thought it was and to return it is an absolute hassle. Even when I look at the younger generations that were expected to go fully online, while they see the brands online, they want to interact with them and be in their spaces where they feel involved and inspired.”

Gulliford adds: “I think people have finally got their heads around the fact that online penetration rates are not going to continuously go up, or even reach the 50% mark. The market has come around to the idea that the position we are at now, around that 25% to 30% mark, will be the long-term penetration rate, which has given investors [in physical retail assets] confidence.”

Knight Frank’s Lund says UK retailers generally accept that the optimal offline-versus-online balance has been found. “All of the big retailers in the UK have well-established online platforms, but they are operating more as a complementary service to physical retailing,” he explains. “The ability to drive profit comes through physical retail. Online is a great driver of revenue – retailers can push a lot of sales through with discount stock – but it’s quite a costly service, so most of the profit, the bottom-line growth, comes out of the physical store portfolios.”

Shop tactics: M&S is among the large retailers investing in their physical portfolios

Sam Waterworth, partner, high street – capital markets, at Knight Frank, believes the UK’s larger retailers will look to increase their investment in bricks-and-mortar stores, now that they are unshackled from the associated costs of setting up online platforms, taking up warehouses and fitting them out.

“M&S are quite a good example,” he says. “Having set up their online operation over the past few years, they are now investing in stores in a big way. We have seen them open in Bristol, Leeds and Liverpool and they are about to open in Bath – almost all being former Debenhams or House of Fraser stores.

“We will see many retailers taking new space with big investments, because they haven’t got that drag of the money they need to pump into the online platform.”

Total retail investment volumes are forecast to reach £5.83bn in 2025, Knight Frank says, down 17% year on year and 8% below the 10-year average, as a result of a shortage of large shopping centre deals in the first half and a significant retail warehousing slowdown in the second half.

“The weight of demand for retail parks has meant buyers are prepared to take a slightly wider view on what is investable than they would do in the shopping centre space,” says Lund. “The demand to get into that sector has meant investors have overlooked certain weaknesses to get cash into the market.

“The gap between prime and secondary is probably narrower in retail warehousing and foodstores than it is in high streets and shopping centres,” he adds. “The gap between a good prime shopping centre and a secondary, underperforming asset is very wide. A lot of the capital focused on the sector is very much at the top 25 to 30 UK schemes; outside that, it gets a lot more discerning.”

Reluctant sellers

With limited prime shopping centre stock and no real chance of new stock coming through for the foreseeable future, owners may become increasingly reluctant to sell as the market improves. “We could see sellers hold out for higher prices, but I doubt that it is likely to dampen investment volumes,” says Lund.

He adds: “There is certainly a discerning nature among the sellers now. There is very little to no distress in the market and sellers will be seeking to find the optimum moment to pull the trigger.”

Waterworth says that he expects activity in the grocery retail subsector this year to follow the same pattern as 2025, characterised largely by major sale-and-leaseback deals as private equity retail owners move “to get their money back through the store estate”.

Turning to high streets, Waterworth expects to see continued growth in investor confidence in prime assets. “In the top high street markets there is now stability in rents and in the best markets we are seeing meaningful rental growth,” he says. “A lot of the weak retailers have gone now, so there isn’t the same amount of vacancy in prime pitches as there was in the Covid and immediate post-Covid years. So, occupiers are fighting for prime pitches in key markets and that is what drives growth.”

But as always in retail, there are two distinct yet concurrent narratives: prime and non-prime. While prime shopping centres and high street assets are experiencing a resurgence, the same cannot be said for non-prime.

“It’s not retail as a whole; it’s prime retail that is brilliant,” says McNamara. “There is still a massive polarisation in good retail and bad retail, and I think those two sections continue to move away from each other. In the really good spaces – those big regional shopping centres and London estates – units are limited and they can really start to get competitive tension and drive rents forward.

“On the high streets, prime will continue to dominate, but I don’t see a world where the secondary market starts to come back. People want prime or they want nothing.”